Out-of-the-Money CEOs: Private Control Premium and Option Exercises

Fos, Vyacheslav; Jiang, Wei

doi:10.2139/ssrn.2355084

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Out-of-the-Money CEOs: Private Control Premium and Option Exercises

Review of Financial Studies, Forthcoming

59 Pages Posted: 17 Nov 2013 Last revised: 8 Sep 2015

See all articles by Vyacheslav Fos

Vyacheslav Fos

Boston College - Department of Finance; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Wei Jiang

Emory University Goizueta Business School; ECGI; NBER

Date Written: September 8, 2015

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 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.

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

JEL Classification: G32, G34, G38, J33

Suggested Citation: Suggested Citation

Fos, Vyacheslav and Jiang, Wei, Out-of-the-Money CEOs: Private Control Premium and Option Exercises (September 8, 2015). Review of Financial Studies, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2355084 or http://dx.doi.org/10.2139/ssrn.2355084