Underpricing and CEO Stock Options: Do Board Characteristics Matter?
54 Pages Posted: 7 Sep 2009 Last revised: 16 Mar 2010
Date Written: August 19, 2009
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: Suggested Citation