Underpricing and CEO Stock Options: Do Board Characteristics Matter?

54 Pages Posted: 7 Sep 2009 Last revised: 16 Mar 2010

See all articles by Salim Chahine

Salim Chahine

American University of Beirut - Olayan School of Business; European Corporate Governance Institute (ECGI)

Marc Goergen

IE Business School, IE University; European Corporate Governance Institute (ECGI)

Date Written: August 19, 2009

Abstract

This paper examines the conditions under which CEOs are able to affect the timing and the price of the stock options they are granted at the time of their firm’s IPO. Contrary to Lowry and Murphy (2007) who do not find a relationship between IPO grants and IPO underpricing, this paper finds such a relationship when board independence, the power of the CEO and venture capital (VC) backing are taken into account. The results suggest that powerful CEOs and VCs are able to reap substantial gains from IPO options to the detriment of the shareholders.

Keywords: stock options, board independence, venture capital involvement, CEO power, initial public offerings, underpricing, conflicts of interest, corporate governance

JEL Classification: G20, G30, J33

Suggested Citation

Chahine, Salim and Goergen, Marc, Underpricing and CEO Stock Options: Do Board Characteristics Matter? (August 19, 2009). ECGI Finance Working Paper No. 257, Available at SSRN: https://ssrn.com/abstract=1468557 or http://dx.doi.org/10.2139/ssrn.1468557

Salim Chahine

American University of Beirut - Olayan School of Business ( email )

Bliss Street
Beirut 1107 2020
Lebanon
961-1-374-374 (Phone)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Marc Goergen (Contact Author)

IE Business School, IE University ( email )

Finance Department
Maria de Molina, 12
Madrid, 28006
Spain

HOME PAGE: http://www.ie.edu/business-school/faculty-and-research/faculty/marc-goergen/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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