Share Repurchases and Stock Option Grants

Dittmann, Ingolf; Keusch, Thomas; Obernberger, Stefan

doi:10.2139/ssrn.3316793

Share Repurchases and Stock Option Grants

39 Pages Posted: 27 Jan 2019 Last revised: 21 Feb 2019

Ingolf Dittmann

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Tinbergen Institute; Erasmus Research Institute of Management (ERIM); European Corporate Governance Institute (ECGI)

Stefan Obernberger

Erasmus University Rotterdam - Erasmus School of Economics; Erasmus Research Institute of Management (ERIM)

Date Written: January 16, 2019

Abstract

This paper shows evidence for the hypothesis that the CEO opportunistically times share repurchases around her grants of at-the-money stock options. We find that firms decrease their repurchase activity in the quarter before the stock option grant to the CEO. When the option grant constitutes a larger fraction of the CEO's salary, firms more strongly change their repurchase activity. An alternative hypothesis is that CEOs time stock option grants rather than share repurchases. This hypothesis gives rise to the expectation that the effect is mostly present in unscheduled options. However, we find that the effect is present for both scheduled and unscheduled grants which is not consistent with this alternative hypothesis.

Keywords: Stock Options, CEO Compensation, Share Repurchases

JEL Classification: G32, G35

Suggested Citation: Suggested Citation

Dittmann, Ingolf and Keusch, Thomas and Obernberger, Stefan, Share Repurchases and Stock Option Grants (January 16, 2019). Available at SSRN: https://ssrn.com/abstract=3316793 or http://dx.doi.org/10.2139/ssrn.3316793