Option Repricing, Corporate Governance, and the Effect of Shareholder Empowerment

67 Pages Posted: 31 Jul 2015 Last revised: 13 May 2016

See all articles by Huseyin Gulen

Huseyin Gulen

Purdue University - Krannert School of Management

William O'Brien

University of Illinois at Chicago

Date Written: May 12, 2016

Abstract

We use the practice of employee option repricing to investigate how shareholder involvement in firm compensation policies affects the quality of firm governance. We find that a 2003 reform that empowered shareholders to approve or reject repricing proposals led to value increases in previous repricers. The likelihood of repricing becomes less sensitive to poor manager performance, but remains similarly sensitive to bad luck, after the reform. Average post-repricing changes in firm performance are positive only after the reform. Overall, our results suggest that shareholder empowerment improves the governance of repricing and can transform repricing into a value-creating tool.

Keywords: Shareholder Empowerment, Executive Compensation, Corporate Finance, Corporate Governance, Corporate Regulation

JEL Classification: G3, G34, G38, G39

Suggested Citation

Gulen, Huseyin and O'Brien, William, Option Repricing, Corporate Governance, and the Effect of Shareholder Empowerment (May 12, 2016). Available at SSRN: https://ssrn.com/abstract=2637642 or http://dx.doi.org/10.2139/ssrn.2637642

Huseyin Gulen (Contact Author)

Purdue University - Krannert School of Management ( email )

1310 Krannert Building
West Lafayette, IN 47907-1310
United States

William O'Brien

University of Illinois at Chicago ( email )

601 S. Morgan St.
Chicago, IL 60607
United States

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