The Stock Price Reaction to Repricing Employee Stock Options

Abstract

We shed light on whether stock option repricings are in the best interests of shareholders by conducting an event study that uses non-contaminated and timely announcements of stock option repricings by Canadian firms. While U.S. firms publicly disclose their repricings in proxy statements months after the repricing, Canadian firms make immediate public disclosures when they reprice. For 54 non-contaminated repricing announcements by Canadian firms over the period November 1994-July 2001, we document a significantly positive three-day mean excess stock return of 6.5%. In the cross-section, however, excess stock returns are unrelated to any of several proposed economic determinants. Overall, our findings support the view that the repricing of employee stock options is on average in the best interests of shareholders.