Stock price decreases prior to executive stock option grants |
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| Institution: | 1. Terry College of Business, University of Georgia, United States;2. Carroll School of Management, Boston College, United States;3. Fogelman College of Business and Economics, University of Memphis, United States;1. D''Amore-McKim School of Business, Northeastern University, 360 Huntington Ave, Boston, MA 02115, USA;2. Isenberg School of Management, University of Massachusetts–Amherst, 121 Presidents Dr, Amherst, MA 01003, USA;1. Business School of Northeast Normal University, No.2555, Jingyue Street, Changchun 130117, China;2. Business School of Sun Yat-sen University, Guangzhou, No.135, Xinggang West Road, Guangzhou, China, 130012;1. Indiana University, United States;2. University of Colorado, United States;3. Conrad Prebys Professorship, Indiana University, United States;1. Hanken School of Economics, Finland;2. Lund University School of Economics and Management, Sweden;3. Elite Asset Management Plc, Finland |
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| Abstract: | This study examines abnormal stock price changes prior to executive stock option grants. Executives have the incentive and opportunity to manage the timing of their communications of inside information to the market during the period just prior to the date of their stock-option grant so as to reduce the exercise price of their options. Executives benefit from temporary stock price decreases before the grant date and by stock price increases after the grant date. Executive stock option grants create a unique opportunity for insiders to profit by manipulating the timing of information flowing to the market without engaging in insider trading. Using data on 783 stock-option grants to chief executive officers, we find a statistically significant abnormal decrease in stock prices during the 10-day period immediately preceding the grant date. |
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