Download or read book Rescission and Repricing of Executive Stock Options Repricing Alternatives Optimal Repricing Policy and Early Exercise PHD written by Twan-Shan Yang and published by . This book was released on 2002 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Costs and Incentive Effects of Stock Option Repricing written by Ulrike Neubauer and published by Peter Lang Publishing. This book was released on 2004 with total page 244 pages. Available in PDF, EPUB and Kindle. Book excerpt: Does repricing of executive stock options, i.e. the practice of lowering the exercise price when options are out-of-the-money unfairly reward managers for poor performance and thereby undermine incentives set by the compensation contract? In a study that compares the pay package containing repriced option with an otherwise adjusted package it is shown that repricing is not more expensive to shareholders than otherwise adjusting non-option compensation components. However, the package containing repriced options provides significantly stronger incentives. Furthermore, a policy that constrains the board of directors from repricing does not have significant effects on shareholders' returns."
Download or read book Repricing of Executive Stock Options written by Jerry T. Yang and published by . This book was released on 2014 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the ex-ante optimality of repricing of executive stock options while considering the tax effects of new accounting rules associated with traditional repricing. Although there has been a body of empirical literature on repricing, the optimality of repricing after considering the economic impact of changing accounting rules has not been addressed in an ex-ante contracting setting. We find that traditional repricing loses its ex-ante dominance over the do-nothing strategy after we incorporate the tax effects of new accounting rules. The theoretical predictions of our paper shed light on this controversial practice and lay a foundation for evaluating repricing alternatives.
Download or read book Stock Option Repricing and its Alternatives written by Swaminathan L. Kalpathy and published by . This book was released on 2007 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Studies on determinants of stock option repricing contrast repricers with firms that do not conduct repricings. In practice, firms resort to other alternatives to retain managers and to restore incentives. We examine a broad array of alternatives that includes repricings, stock option grants, restricted stock grants, and the neutral alternative of doing nothing. Multinomial logit results suggest that firms reprice CEO stock options in response to economic factors. We address the debate on whether agency conflicts between managers and shareholders are severe in repricing firms, and do not find evidence that repricers are characterized by weak boards or entrenched managers.
Download or read book The Repricing of Executive Stock Options written by Don M. Chance and published by . This book was released on 2010 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine the incidence of corporations lowering the exercise prices of their executive stock options. These options can be viewed as a combination of a down-and-out call option and a down-and-in call option with the exercise price equal to the barrier. Using barrier option pricing theory, we find that at a minimum this features adds 7-10 percent to the value of the options on the grant date. We also examine the market, industry and firm-specific performance of a sample of 37 firms and 53 reset events. The period covered was 250 days before and after the day on which the firm reset the exercise prices of its executive stock options. The evidence strongly supports the conclusion that resetting the exercise price follows a period of poor firm-specific performance. The magnitude of the reduction in the exercise price was positively related to the firm's stock price performance and using a value- weighted market portfolio, it was negatively related to the market's performance. No evidence supports the contention that lowering the exercise price brings an end to the firm's problems and leads to an increase in shareholder wealth. Though the direct dollar impact at the time of the reset is relatively small to the shareholders, it is not insignificant to management. Allowing for the possibility of resetting after a stock price decline can create a perverse incentive under certain circumstances for managers to deliberately drive the stock price down further. In addition management has a greater incentive to engage in high risk projects than it would have with ordinary non- esettable options. These incentives and our results that the resets are indeed done, sometimes repeatedly, following poor firm-specific performance suggest that resetting is not in the best interests of shareholders, who should certainly question this practice.
Download or read book Option Repricing and Incentive Realignment written by Jeffrey L. Coles and published by . This book was released on 2014 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide evidence that firms reprice out-of-the-money executive stock options in order to realign managerial incentives. A sharp decline in stock price, by reducing the sensitivity of executive pay to firm performance (delta) and, in many cases, increasing sensitivity of executive pay to stock-return volatility (vega), can cause managerial incentives to depart from optimal or target levels. Our results suggest that increasing delta does not appear to be a strong motivation for repricing. Rather, we find strong evidence that firms reprice executive options to reduce risk-taking incentives (vega) toward the target level.
Download or read book An Examination of Executive Stock Option Repricing written by Mary Ellen Carter and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, we examine factors that explain firms' decisions to reprice stock options. Comparing a sample of firms that reprice executive stock options in 1998 to a control sample of firms with out-of-the-money options in 1998 that choose not to reprice, we find that young, high technology firms are more likely to reprice than other firms. In addition, we find that the likelihood of repricing increases as options become more out-of-the-money, and that firms reprice in response to poor firm-specific performance, not poor industry performance. These results are not consistent with claims that firms reprice to insulate management from uncontrollable industry effects. However, we find no relation between the likelihood of repricing and conflicts of interest between executives and shareholders, suggesting that repricing is not related to agency problems. The results are consistent with the often stated motivation that firms must reprice out-of-the-money options to restore the incentive effects of those options and to prevent management in competitive labor markets from going to work for other firms.
Download or read book The Timing of Option Repricing written by Sandra Renfro Callaghan and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates whether firms time the stock option repricing to coincide with favorable movements in the company's stock price. For a sample of 166 firms that repriced executive stock options during the period 1992 through 1997, we show that, in general, stock price rises sharply on the repricing date and continues to increase for the next twenty days. In addition, repricing often occurs just following the release of bad news or just prior to good news. Since no information about the stock option repricing is released around the repricing date, the evidence above is suggestive of management timing the option repricing date to precede other good news events that are announced.
Download or read book Executive Stock Option Repricing Internal Governance Mechanisms and Management Turnover written by N.K. Chidambaran and published by . This book was released on 2010 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze characteristics of firms that reprice their executive stock options (ESOs). We document that repricings are economically significant compensation events but there is little else unusual about compensation levels or changes in repricers. Cross-sectionally, repricers are rapidly growing firms that experience a deep, sudden shock to growth and profitability. Repricers are likely to be smaller, younger, more concentrated in technology, trade or service industry sectors, and have smaller boards of directors relative to firms that did not reprice ESOs despite similar return shocks. Repricers have abnormally high CEO turnover rates, and do not show low institutional ownership or more diffuse ownership of their equity. Over 40% of repricers do not include the CEO in the list of executives repriced. Collectively, our evidence provides little support for the view that repricing primarily reflects managerial entrenchment or ineffective governance in firms.
Download or read book Executive Stock Option Repricing written by Christopher M. Cassidy and published by . This book was released on 2002 with total page 284 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Executive Stock Options Firm Performance and Risk written by Allan McCall and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation comprises two essays on the use of stock options as compensation. In the first I examine the implementation of stock option plans in the 1950s as a natural experiment through which to examine the incentive implications of stock options. In the 1950 Revenue Act, Congress created "restricted stock options" that received favorable tax treatment compared to other forms of compensation. Immediately prior to change in tax law, there was almost no use of stock options for compensation. Over subsequent years, the majority of firms in my sample implement stock option plans. I find evidence that executives appear to respond to stock option plans by increasing firm risk and decreasing dividend payments. However, I do not find that firms implementing stock option plans subsequently perform better, and in fact find that in terms of ROA, they perform worse over the two years after putting a stock option plan in place. The second essay examines the economic consequences associated with the board of director choice of whether to adhere to proxy advisory firm policies in the design of stock option repricing programs. Proxy advisors provide research and voting recommendations to institutional investors on issues subject to a shareholder vote. Since many institutional investors follow the recommendations of proxy advisors in their voting, proxy advisor policies are an important consideration for corporate boards in the development of programs that require shareholder approval such as stock option repricing programs. Using a comprehensive sample of stock option repricings announced between 2004 and 2009, we find that repricing firms following the restrictive policies of proxy advisors exhibit statistically lower market reaction to the repricing, lower operating performance, and higher employee turnover. These results are consistent with the conclusion that proxy advisory firm recommendations regarding stock option repricings are not value increasing for shareholders.
Download or read book Repricing Stock Options written by James Reda and published by . This book was released on 2014 with total page 6 pages. Available in PDF, EPUB and Kindle. Book excerpt: Due to recent drops in the stock market, many U.S. publicly traded companies are considering repricing stock options for their executives. Companies must balance the need to attract and retain executives with shareholder interests, since repricings effectively separate the interests of management and the interest of shareholders. Studies have shown little support for the traditional justifications for rich executive stock awards, such as a weak correlation between executive ownership and stock performance. Since stock market conditions have changed, the opportunity arises to re-structure executive compensation in line with expected stock market returns and company needs.
Download or read book The Effect of Stock Option Repricing on Employee Turnover written by Mary Ellen Carter and published by . This book was released on 2004 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: We examine whether repricing underwater stock options reduces both executive and overall employee turnover using a sample of firms that reprice stock options in 1998 and a sample of firms with underwater stock options that choose not to reprice. We find little evidence that repricing affects executive turnover. However, using forfeited stock options to proxy for overall employee turnover, we find that employee turnover in 1999 is negatively related to the 1998 repricing, suggesting that repricing helps to prevent turnover due to underwater options. We find no evidence that the relation between turnover and repricing differs between high technology and nonhigh technology firms.
Download or read book Structure of Option Repricings written by Fabrizio Ferri and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I present a novel dataset of over 4,000 firm-level repricings of executives and employees' stock options over the period 1987-2002. For a sub-sample of 587 repricings characterized by a homogeneous institutional environment, I investigate determinants and consequences of the structure of the repricing offer, defined in terms of: i) eligibility criteria (i.e. who is eligible to participate?), ii) economic terms (e.g. new exercise price, number of new options granted in replacement of each underwater option), and iii) exerciseability conditions (e.g. restarted vesting schedule, other retention-enhancing features).Overall, I find significant evidence of managerial self-serving behavior in certain aspects of the design of the repricing offer. In particular: i) more visible firms, with stronger corporate governance, are more likely to exclude executives from the repricing offer; ii) retention-enhancing features (which reduce the value of the options) are significantly less likely when executives' options are repriced than in employee-only repricings; iii) repricings are timed just before significant price run-ups when the CEO participates in the repricing, but not in employee-only repricings; iv) higher institutional ownership is associated with economic terms less favorable to executives and stricter exerciseability conditions. The choice of economic terms and exerciseability conditions seems to mostly depend on economic determinants. In particular, firms are more likely to offer a partial repricing when there is a deeper underwater problem, while retention-enhancing features are more frequent when there is a higher perceived retention risk and better outside employment opportunities. Finally, I find weak evidence of a decrease in employee turnover after the repricing, but the extent of such decrease does not seem to depend on the structure of the repricing offer.Beside contributing to the literature on option repricings, these results may be of interest to investors called to vote upon repricing proposals by recent NYSE and NASDAQ rules requiring mandatory shareholder approval for all repricings - unless explicitly authorized by the stock option plan.
Download or read book Does Option Repricing Retain Executives and Improve Future Performance written by Sandra Renfro Callaghan and published by . This book was released on 2003 with total page 45 pages. Available in PDF, EPUB and Kindle. Book excerpt: We directly test the assertion that executive stock option repricing leads to increased management retention and/or improved future firm performance. Using a sample of 201 repricing events and a non-repricing control sample, we examine executive retention in the four years following repricing. We find that CEO retention is significantly greater for repricing firms relative to non-repricing firms for three years following the repricing date, and non-CEO executive retention is significantly greater for two years. We also find that, in the pre-repricing period, repricing firms exhibit significant positive industry-adjusted firm growth, stock, and operating performance. However, we find mixed results in the post-repricing period. We find that repricing firms exhibit significant negative industry-adjusted firm growth, and significant positive industry-adjusted stock and accounting performance.
Download or read book Stock Option Repricing in Europe written by Michael Sauer and published by . This book was released on 2008 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the link between option repricing, firm performance and corporate governance in Europe. Our sample consists of 77 European firms that repriced their stock option between 1987 and 2003. We document that option repricing is mainly a phenomenon for young and fast growing firms that showed a sharp decline in accounting and stock price performance in the two years prior to the repricing. On the day of the repricing, the exercise prices of the outstanding options are on average 60% above the share prices. This underwater problem is corrected through the repricing. In 20% of all sample firms the associated change in the Black Scholes-value exceeds 10% of the firms' market capitalization. The repricing implies an average increase in the annual salary of an executive of about 40%. Cash salaries are not adjusted downwards when options are repriced. The performance of the repricing firms improves significantly after the repricing. We provide evidence that suggest that the favorableness of the repricing structures is related to corporate governance structures.
Download or read book The Role of Politics in Repricing Executive Options written by Tim Pollock and published by . This book was released on 2002 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: We explore how CEO power impacts executive option repricing. The spread between the option strike price and the market value of the stock impacts the likelihood of repricing. This effect is enhanced when the CEO is the Chairman of the Board. Firm and CEO visibility, having more board members appointed after the CEO, having a classified board, and higher percentages of CEO and institutional ownership reduce the impact of spread on the likelihood of repricing.
