Repricing of Executive Stock Options

Yang, Jerry T.; Carleton, Willard T.

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Repricing of Executive Stock Options

Review of Quantitative Finance and Accounting, Vol. 36, No. 3, 2011

57 Pages Posted: 20 Jun 2014

See all articles by Jerry T. Yang

Jerry T. Yang

National United University - Department of Finance; National Tsing Hua University - Department of Quantitative Finance

Willard T. Carleton

University of Arizona

Date Written: April 12, 2011

Abstract

We examine the ex-ante optimality of repricing of executive stock options while considering the tax effects of new accounting rules associated with traditional repricing. Although there has been a body of empirical literature on repricing, the optimality of repricing after considering the economic impact of changing accounting rules has not been addressed in an ex-ante contracting setting. We find that traditional repricing loses its ex-ante dominance over the do-nothing strategy after we incorporate the tax effects of new accounting rules. The theoretical predictions of our paper shed light on this controversial practice and lay a foundation for evaluating repricing alternatives.

Keywords: Executive Stock Options; Incentive Contracts; Variable Accounting Charges; Agency Costs

JEL Classification: G30; G32; G34; G38; J33; L14

Suggested Citation: Suggested Citation

Yang, Jerry T. and Carleton, Willard T., Repricing of Executive Stock Options (April 12, 2011). Review of Quantitative Finance and Accounting, Vol. 36, No. 3, 2011, Available at SSRN: https://ssrn.com/abstract=2456555