Abstract
We examine stock and bond price reactions to first time grants of equity compensation to CEOs. For firms granting options and/or restricted stock to their CEOs for the first time during the period 1992 to 2004, we find large positive stock price reactions and large negative bond price reactions. The negative bondholder reactions are significantly larger when the CEO has little or no prior equity ownership and significantly smaller for firms with weak shareholder rights (greater managerial power). We establish links between the stock and bond price reactions and the incentive characteristics of the grants. We find that stock price reactions decrease in CEO pay-performance sensitivity (delta) and increase in the sensitivity of CEO wealth to stock volatility (vega). In contrast, we find that bondholder reactions increase in delta and decrease in vega when the CEO has little or no equity ownership prior to the grant.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
