Proxy Advisory Firms and Stock Option Repricing

60 Pages Posted: 19 Apr 2011 Last revised: 9 Dec 2013

See all articles by David F. Larcker

David F. Larcker

Stanford Graduate School of Business; Stanford University - Hoover Institution; European Corporate Governance Institute (ECGI)

Allan L. McCall

Stanford University - Graduate School of Business

Gaizka Ormazabal

University of Navarra, IESE Business School; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Date Written: 11 2013

Abstract

This paper examines the relationship between firm performance and the recommendations provided by proxy advisory firms in the United States, regarding shareholder votes in stock option exchange programs. Using a comprehensive sample of stock option exchanges announced between 2004 and 2009, we find that exchange firms following the restrictive policies of proxy advisory firms exhibit statistically lower market reaction at the announcement of this transaction, lower operating performance, and higher executive turnover. These results are consistent with the conclusion that proxy advisory firm recommendations regarding stock option exchanges are not value increasing for shareholders.

David Larcker is a co-author of the book Corporate Governance Matters, FT Press 2011.

Prior draft date: August 19, 2011 Current Draft Date: April 9, 2012

Keywords: proxy advisory firms, stock option exchanges, institutional shareholder voting, proxy voting

JEL Classification: G1, G3, K2, L5

Suggested Citation

Larcker, David F. and McCall, Allan L. and Ormazabal, Gaizka, Proxy Advisory Firms and Stock Option Repricing (11 2013). Journal of Accounting & Economics (JAE), Vol. 56, No. Issues 2–3, November–December 2013, Pages 149-169, 2013, Rock Center for Corporate Governance at Stanford University Working Paper No. 100, Available at SSRN: https://ssrn.com/abstract=1811130 or http://dx.doi.org/10.2139/ssrn.1811130

David F. Larcker (Contact Author)

Stanford Graduate School of Business ( email )

Graduate School of Business
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Stanford, CA 94305-5015
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650-725-6159 (Phone)

Stanford University - Hoover Institution ( email )

Stanford, CA 94305
United States

European Corporate Governance Institute (ECGI) ( email )

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

Allan L. McCall

Stanford University - Graduate School of Business ( email )

Stanford, CA 94305
United States

Gaizka Ormazabal

University of Navarra, IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain

European Corporate Governance Institute (ECGI) ( email )

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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