Voluntary disclosures and the exercise of CEO stock options |
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| Authors: | Paul Brockman Xiumin Martin Andy Puckett |
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| Institution: | 1. Strathclyde Business School, University of Strathclyde, 100 Cathedral Street, Glasgow G4 0LN, UK;2. School of Economics, Finance and Management, University of Bristol, 8 Woodland Road, Bristol BS8 1TN, UK;1. W.P. Carey School of Business, Arizona State University, Tempe, AZ 85287, USA;2. Robert and Maria Lowden Chair of Finance, Neeley School of Business, Texas Christian University, Fort Worth, TX 76129, USA;3. Samuel S. Stewart, Jr. Presidential Chair in Business, David Eccles School of Business, University of Utah, Salt Lake City, UT 84112, USA;4. Neeley School of Business, Texas Christian University, Fort Worth, TX 76129, USA;1. Department of Accounting and Corporate Governance, Carl von Ossietzky University Oldenburg, Ammerländer Heerstr. 114-118, 26129 Oldenburg, Germany;2. Department of Finance, College of Business, Florida State University, 251 Rovetta Business Building, Tallahassee, FL 32306, USA |
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| Abstract: | We examine voluntary disclosures around the exercise of CEO stock options. Previous research shows that managerial incentives depend on the intended disposition of the exercised options' underlying shares. When CEOs intend to sell the underlying shares of exercised options, they have an incentive to increase stock prices in the pre-exercise period. In contrast, when CEOs intend to hold the underlying shares, they have a tax incentive to decrease stock prices in the pre-exercise period. Consistent with these private incentives, we find a significant increase in the frequency and magnitude of good (bad) news announcements in the pre-exercise period when CEOs implement exercise-and-sell (exercise-and-hold) strategies. We provide some evidence that CEOs' propensities for opportunistic disclosures are positively related to the value of their exercised stock options. Lastly, we find that the Sarbanes–Oxley Act (SOX) generally reduces, but does not eliminate, this type of managerial opportunism. |
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