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Executive Stock Options and Manipulated Stock‐Price Performance
Author(s) -
Zheng Liu,
Zhou Xianming
Publication year - 2012
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/j.1468-2443.2011.01146.x
Subject(s) - stock (firearms) , stock options , non qualified stock option , incentive , restricted stock , stock price , executive compensation , business , economics , financial economics , finance , microeconomics , stock market , mechanical engineering , paleontology , horse , series (stratigraphy) , engineering , biology
Previous studies have examined the manipulation of executive stock option awards and exercises, focusing on information timing by managers. In this paper, we investigate managerial manipulation of stock‐price performance motivated by stock options. To distinguish performance manipulation from information timing, we examine stock returns surrounding the departure of retiring CEOs , whose option holdings typically expire shortly after their departure and whose chances to manipulate option awards and exercises are minimized. Consistent with manipulated performance, we find significant abnormal stock returns in the months surrounding CEO departure for those with strong option incentives, which are reversed shortly after CEO departure.