Ameritrade Holding Corporation

Posted: 2 Jan 2002

See all articles by Lisa K. Meulbroek

Lisa K. Meulbroek

Claremont McKenna College - Robert Day School of Economics and Finance



As Ameritrade, a discount internet-brokerage firm, prepares for a seasoned equity offering, many of its senior managers at are selling their stock in the company. The CEO is concerned that the market will interpret the sales as a signal that managers believe the firm to be overvalued, a signal that has the potential to interfere with the upcoming equity offering. Furthermore, he thinks that such sales have the potential to undermine a carefully thought-out compensation system designed to align the interests of managers with those of shareholders.

Teaching Objectives:

The case illustrates the difficulty faced by managers who have much of their wealth invested in the company's stock or options, and would like to sell some of those holdings. Can managers sell without harming the firms' other shareholders? This dilemma is a frequent one in entrepreneurially-based firms, and, with the wide adoption of stock and option-based compensation, it is increasingly common for managers in more established firms. The case specifically prompts students to consider the link between the firm's compensation system and managers' decision to sell their holdings in the firm. Why are managers selling? What are the effects of the sale on shareholder value? How does the compelled holding of the firm's stock affect its value to managers? The case is taught in Corporate Finance Management, a second-year elective MBA course. The case can also be used in an introductory corporate finance class, either within the context of market efficiency, insider trading or executive compensation systems (particularly emphasizing the cost of compensating managers in stock or options).

Keywords: Executive compensation, insider trading, signaling, valuing exective stock options, seasoned equity offerings

JEL Classification: G30, G32, G34, G14, J31, J33

Suggested Citation

Meulbroek, Lisa K., Ameritrade Holding Corporation. HBS Publishing Case No.: 9-200-057. Available at SSRN:

Lisa K. Meulbroek (Contact Author)

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States
909-607-7363 (Phone)

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