Executive stock options and IPO underpricing |
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Authors: | Michelle Lowry Kevin J Murphy |
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Institution: | 1. Smeal College of Business, Penn State University, University Park, PA 16802, USA;2. Marshall School of Business, University of Southern California, Los Angeles, CA 90089, USA |
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Abstract: | In about one-third of US IPOs between 1996 and 2000, executives received stock options with an exercise price equal to the IPO offer price rather than a market-determined price. Among firms with such “IPO options”, 58% of top executives realize a net benefit from underpricing: the gain from the options exceeds the loss from the dilution of their pre-IPO shareholdings. If executives can influence either the IPO offer price or the timing and terms of their stock option grants, there should be a positive relation between IPO option grants and underpricing. We find no evidence of such a relation. Our results contrast sharply with the emerging literature on managerial self-dealing at shareholder expense. |
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Keywords: | G24 G32 J33 |
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