The Role of Managerial Stock Option Programs in Governance: Evidence from REIT Stock Repurchases

36 Pages Posted: 30 Jul 2007

See all articles by Erasmo Giambona

Erasmo Giambona

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate

Chinmoy Ghosh

University of Connecticut - Department of Finance

John P. Harding

University of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies

Özcan Sezer

University of Toledo

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law

Date Written: July 17, 2007

Abstract

This paper examines the role of stock option programs and executive holdings of stock options in REIT governance. We study this issue by analyzing how the market reaction to a stock repurchase announcement varies as a function of the individual REIT's governance structure. In particular, we examine how executive and employee stock option holdings influence the market reaction to a firm's announcement of a stock repurchase. Using a sample of REIT repurchase announcements, we find that the market reacts more favorably to announcements by firms where executives have larger option holdings and the CEO is not entrenched. Our results with respect to the roles of stock option holdings of executives and non-executives differ from those reported for a cross section of non-REIT firms. While we find evidence supporting the importance of executive stock options in aligning the incentives of management and reinforcing the positive signaling associated with a repurchase announcement, we find little evidence that the market views REIT repurchases as being used primarily to fund option exercise. We attribute these findings to greater dependence by REIT investors on internal governance mechanisms (such as stock option programs) as a result of regulatory restrictions that limit external monitoring such as hostile takeovers.

Keywords: REIT Repurchases, Governance

JEL Classification: G34, G35

Suggested Citation

Giambona, Erasmo and Ghosh, Chinmoy and Harding, John P. and Sezer, Özcan and Sirmans, C. F., The Role of Managerial Stock Option Programs in Governance: Evidence from REIT Stock Repurchases (July 17, 2007). Available at SSRN: https://ssrn.com/abstract=1003645 or http://dx.doi.org/10.2139/ssrn.1003645

Erasmo Giambona

Syracuse University - Whitman School of Management - Finance Department; James D. Kuhn Center for Real Estate ( email )

721 University Avenue
RM 640
Syracuse, NY 13244-2450
United States
315 443-4885 (Phone)

Chinmoy Ghosh

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-486-3040 (Phone)
860-486-0349 (Fax)

John P. Harding (Contact Author)

University of Connecticut - School of Business - Center for Real Estate and Urban Economic Studies ( email )

2100 Hillside Road
Unit 1041RE
Storrs, CT 06269-2041
United States
860-486-3227 (Phone)
860-486-0349 (Fax)

Özcan Sezer

University of Toledo ( email )

Mail Stop 119, HH 3000
Toledo, OH 43606

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law ( email )

Tallahasse, FL 32306
United States
850 644-4076 (Phone)

HOME PAGE: http://www.cob.fsu.edu/rmi

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