The Effect of Corporate Governance on CEO Luck: Evidence from the Institutional Shareholder Services (ISS)
12 Pages Posted: 10 Jun 2013
Date Written: June 8, 2013
CEOs are “lucky” when they receive stock option grants on days when the stock price is the lowest in the month of the grant, implying opportunistic timing. Extending the work of Bebchuk, Grinstein, Peyer (2010), we explore the effect of overall corporate governance quality on CEO luck. Provided by the Institutional Shareholder Services (ISS), our comprehensive governance metrics are much broader than those used in prior studies, encompassing more diverse aspects of corporate governance, such as audit, state laws, boards, ownership, and director education. We show that an improvement in governance quality by one standard deviation diminishes CEO luck by 14.77-21.06%. The governance standards recommended by ISS appear to be effective in deterring the opportunistic timing of option grants.
Keywords: corporate governance, option backdating, lucky CEOs, institutional shareholder services, agency theory, agency conflict
JEL Classification: G30, G34
Suggested Citation: Suggested Citation