Manager-Initiated versus Investor-Initiated Equity Issuances

Abstract

Cash proceeds from employees' exercise of options are substantial, totaling over $1 trillion in aggregate since 1985. Option exercises are unlikely to inform us about how contemporaneous conditions influence managers' motives to issue, because the option grant is jointly a compensation decision, and is typically made years prior to the share issuance. Using a simple filter to identify the firm-initiated component in pooled data, I find that cash savings is less prevalent than reported in previous studies and that a sizable portion of the leverage effect from market timing is driven by the actions of employees.