35 Pages Posted: 18 Jul 2003
Date Written: February 2003
This paper analyzes the characteristics and impact of loans made to executives for purposes of stock purchase, option exercise and relocation. We find that loans made to assist executives in purchasing stock or excercising options are larger and have higher interest rates than relocation loans. All types of loans, however, are issued at below-market interest rates, on average. We also find while stock purchase loans are given to managers with low existing ownership, option exercise loans are given to managers with high existing ownership and high cash compensation. Finally, our results indicate that executive stock ownership increases follwong stock purchase and option exercise loans. For managers as a whole, a loan that enables a manager to buy 100 shares of stock results in only an eight-share increase in ownership. However, the relation between ownership changes and stock purcahse loans is much stronger for low ownership managers.
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