Stock Option Repricing in Europe

43 Pages Posted: 17 Jan 2008

See all articles by Michael Sauer

Michael Sauer

affiliation not provided to SSRN

Zacharias Sautner

University of Zurich - Department of Finance; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Date Written: January 17, 2008

Abstract

This paper investigates the link between option repricing, firm performance and corporate governance in Europe. Our sample consists of 77 European firms that repriced their stock option between 1987 and 2003. We document that option repricing is mainly a phenomenon for young and fast growing firms that showed a sharp decline in accounting and stock price performance in the two years prior to the repricing. On the day of the repricing, the exercise prices of the outstanding options are on average 60% above the share prices. This underwater problem is corrected through the repricing. In 20% of all sample firms the associated change in the Black Scholes-value exceeds 10% of the firms' market capitalization. The repricing implies an average increase in the annual salary of an executive of about 40%. Cash salaries are not adjusted downwards when options are repriced. The performance of the repricing firms improves significantly after the repricing. We provide evidence that suggest that the favorableness of the repricing structures is related to corporate governance structures.

Keywords: Executive Stock Options, Option Repricing, Comparative Corporate Governance

JEL Classification: G30, G32

Suggested Citation

Sauer, Michael and Sautner, Zacharias, Stock Option Repricing in Europe (January 17, 2008). Available at SSRN: https://ssrn.com/abstract=1084842 or http://dx.doi.org/10.2139/ssrn.1084842

Michael Sauer (Contact Author)

affiliation not provided to SSRN

Zacharias Sautner

University of Zurich - Department of Finance ( email )

Plattenstr 32
Zurich, 8032
Switzerland

Swiss Finance Institute ( email )

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
235
Abstract Views
1,890
Rank
236,510
PlumX Metrics