Abstract
Existing studies have extensively examined how executive stock options are awarded, exploring various factors including manipulation. In this study we ask whether and how executive options affect shareholder value. We address this issue by examining stock-price performance surrounding chief executive officer (CEO) turnover, focusing on retiring CEOs. Retiring CEOs are often with high stock option holdings that are to expire shortly after their departure, and hence are expected to have strong option-induced incentives either to enhance or to manipulate the firm’s performance. We document evidence in support of managerial manipulations that cause a short-term valuation effect in favor of stock option exercises.
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