Good Timing: CEO Stock Option Awards and Company News Announcements

38 Pages Posted: 11 Nov 2008

See all articles by David Yermack

David Yermack

New York University (NYU) - Stern School of Business

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Date Written: March 1995


This paper proposes and implements a new method for investigating whether CEOs influence the terms of their own compensation. I analyze the dates of 591 stock option awards to CEOs of Fortune 500 companies in 1992 and 1993, finding that the timing of awards coincides with favorable movements in companies stock prices even though the awards remain secret for many months. Patterns of corporate earnings and dividend announcements suggest strongly that CEOs receive stock option awards shortly before favorable corporate news and that awards are delayed until after the release of adverse news. Analysis of abnormal volume data does not support the possibility that insider trading based on knowledge of the option awards can explain the stock price gains. The findings imply that top mangers can affect their companies processes for awarding stock options and exploit this influence in order to increase compensation.

Suggested Citation

Yermack, David, Good Timing: CEO Stock Option Awards and Company News Announcements (March 1995). NYU Working Paper No. FIN-94-052. Available at SSRN:

David Yermack (Contact Author)

New York University (NYU) - Stern School of Business ( email )

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