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Out-of-the-Money CEOs: How Do Proxy Contests Affect Insider Option Exercises


Vyacheslav Fos


University of Illinois at Urbana-Champaign

Wei Jiang


Columbia Business School - Finance and Economics

June 3, 2014

Columbia Business School Research Paper No. 13-82

Abstract:     
When a proxy contest is looming, the rate at which CEOs exercise options in order to sell (hold) the resulting shares slows down by 80% (accelerates by 60%), consistent with their desire to maintain or strengthen voting rights when facing control challenges. Such deviations are closely aligned with features unique to proxy contests, e.g., the record dates and nomination status. Moreover, a contest triples the probability that an insider exercises options out-of-the-money, an irrational strategy under conventional models. The various distortions suggest that incumbents (with private benefits of control) value their stocks 5% -- 20% higher than the market price.

Number of Pages in PDF File: 55

Keywords: private benefits of control; proxy contests; insider trading; early option exercise

JEL Classification: G32, G34, G38, J33

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Date posted: November 17, 2013 ; Last revised: July 26, 2014

Suggested Citation

Fos, Vyacheslav and Jiang, Wei, Out-of-the-Money CEOs: How Do Proxy Contests Affect Insider Option Exercises (June 3, 2014). Columbia Business School Research Paper No. 13-82. Available at SSRN: http://ssrn.com/abstract=2355084 or http://dx.doi.org/10.2139/ssrn.2355084

Contact Information

Vyacheslav Fos (Contact Author)
University of Illinois at Urbana-Champaign ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
(217) 333 5734 (Phone)
HOME PAGE: http://www.business.illinois.edu/facultyprofile/faculty_profile.aspx?ID=13796
Wei Jiang
Columbia Business School - Finance and Economics ( email )
3022 Broadway
New York, NY 10027
United States
(212) 854-5553 (Phone)

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