Out-of-the-Money CEOs: Private Control Premium and Option Exercises
Boston College - Department of Finance
Columbia Business School - Finance and Economics
September 8, 2015
Review of Financial Studies, Forthcoming
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 challenges. Such deviations are closely aligned with features unique to proxy contests, such as the record dates and nomination status, and are more pronounced when the private benefits are higher or when the voting rights are more crucial. The distortions suggest that incumbents value their stocks higher than the market price when voting rights are valuable for defending control.
Number of Pages in PDF File: 59
Keywords: private benefits of control; proxy contests; insider trading; early option exercise
JEL Classification: G32, G34, G38, J33
Date posted: November 17, 2013 ; Last revised: September 8, 2015
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