The Effect of CEO Luck on the Informativeness of Stock Prices: Do Lucky CEOS Improve Stock Price Informativeness?
17 Pages Posted: 17 Nov 2013
Date Written: November 16, 2013
CEOs are “lucky” when they are granted stock options on days when the stock price is lowest in the month of the grant, implying opportunistic timing and severe agency problems (Bebchuck, Grinstein, and Peyer, 2010). Using idiosyncratic volatility as our measure of stock price informativeness, we find that lucky CEOs improve the informativeness of stock prices significantly. In particular, CEO luck raises the degree of informativeness by 4.39%. Powerful CEOs who can circumvent governance mechanisms and successfully practice opportunistic timing of options grants are so secured in their positions that they have fewer incentives to conceal information, thereby improving informativeness.
Keywords: option backdating, CEO luck, lucky CEOs, informativeness, idiosyncratic volatility, transparency, information asymmetry
JEL Classification: G30, G34
Suggested Citation: Suggested Citation