Lucky CEOs and Lucky Directors

Abstract:     
This paper integrates and further develops the analysis of two discussion papers we circulated earlier, “Lucky CEOs” and “Lucky Directors.” We study the relation between opportunistic timing of option grants and corporate governance, focusing on at-the-money “lucky” grants awarded at the lowest price of the grant month. We find that both CEO and independent directors received an abnormally high number of lucky grants, and that opportunistic timing of director grants was not merely a by-product of their coinciding with executive grants or of firms’ routinely timing all grants. Lucky grants to CEOs and directors are associated with higher CEO compensation from other sources, and are correlated with a lack of majority of independent directors on the board, no independent compensation committee with an outside blockholder, or a long-serving CEO. For any given firm, the odds of a lucky grant increased when the payoffs from luck were high and when a preceding grant was lucky.

Lucky CEOs is available on SSRN at: http://papers.ssrn.com/abstract =945392
Lucky Directors is available on SSRN at: http://papers.ssrn.com/abstract =952239

Keywords: Executive compensation, corporate governance, options, backdating, timing, spring-loading, inside information, CEO, independent directors

JEL Classifications: D23, G32, G38, J33, J44, K22, M14

Accepted Paper Series