Executive Stock Option Repricing, Internal Governance Mechanisms, and Management Turnover

48 Pages Posted: 23 Jul 2000

See all articles by N.K. Chidambaran

N.K. Chidambaran

Fordham University - Gabelli School of Business

Nagpurnanand Prabhala

The Johns Hopkins Carey Business School

Date Written: December 2000

Abstract

We analyze characteristics of firms that reprice their executive stock options (ESOs). We document that repricings are economically significant compensation events but there is little else unusual about compensation levels or changes in repricers. Cross-sectionally, repricers are rapidly growing firms that experience a deep, sudden shock to growth and profitability. Repricers are likely to be smaller, younger, more concentrated in technology, trade or service industry sectors, and have smaller boards of directors relative to firms that did not reprice ESOs despite similar return shocks. Repricers have abnormally high CEO turnover rates, and do not show low institutional ownership or more diffuse ownership of their equity. Over 40% of repricers do not include the CEO in the list of executives repriced. Collectively, our evidence provides little support for the view that repricing primarily reflects managerial entrenchment or ineffective governance in firms.

Keywords: Executive compensation, repricing

JEL Classification: G30, G34

Suggested Citation

Chidambaran, N.K. and Prabhala, Nagpurnanand, Executive Stock Option Repricing, Internal Governance Mechanisms, and Management Turnover (December 2000). EFMA 2001 Lugano Meetings; AFA 2001 New Orleans; Tuck-JFE Contemporary Corporate Governance Conf, Available at SSRN: https://ssrn.com/abstract=236090 or http://dx.doi.org/10.2139/ssrn.236090

N.K. Chidambaran

Fordham University - Gabelli School of Business ( email )

United States

Nagpurnanand Prabhala (Contact Author)

The Johns Hopkins Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States
+1 410 234 4532 (Phone)

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