Repricing of Executive Stock Options
57 Pages Posted: 20 Jun 2014
Date Written: April 12, 2011
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