Abstract

http://ssrn.com/abstract=745684
 
 

References (31)



 
 

Citations (12)



 


 



Executive Stock Options and IPO Underpricing


Michelle Lowry


Drexel University

Kevin J. Murphy


University of Southern California - Marshall School of Business; University of Southern California - Department of Economics; USC Gould School of Law

August 1, 2006


Abstract:     
In about one-third of US IPOs between 1996 and 2000, executives received stock options with an exercise price set equal to the IPO offer price (rather than a price determined by the market). Among firms with such "IPO options", 58 percent of top executives receive a net gain from underpricing, meaning the gain from IPO options exceeds the loss from the dilution of their pre-IPO shareholdings. If executives can influence the IPO offer price, we expect a positive relation between these IPO options and underpricing. Alternatively, executives may be able to influence the timing and terms of their stock options, and this would similarly predict a positive relation between IPO options and underpricing. However, we fail to find any evidence of such a relation. Our results run counter to the emerging literature claiming that managers blatantly take self-serving actions to improve their personal welfare at shareholder expense.

Number of Pages in PDF File: 39

Keywords: Initial public offering; IPO underpricing; Executive compensation; Stock options

JEL Classification: G24, G32, J33

working papers series





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Date posted: June 21, 2005  

Suggested Citation

Lowry, Michelle and Murphy, Kevin J., Executive Stock Options and IPO Underpricing (August 1, 2006). Available at SSRN: http://ssrn.com/abstract=745684 or http://dx.doi.org/10.2139/ssrn.745684

Contact Information

Michelle B. Lowry (Contact Author)
Drexel University ( email )
Philadelphia, PA 19104
United States
215-895-6070 (Phone)
Kevin J. Murphy
University of Southern California - Marshall School of Business ( email )
BRI 308, MC 0804
Los Angeles, CA 90089-0804
United States
213-740-6553 (Phone)
213-740-6650 (Fax)

University of Southern California - Department of Economics
3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States
USC Gould School of Law
699 Exposition Boulevard
Los Angeles, CA 90089
United States

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