Repurchases, Employee Stock Option Grants, and Hedging

47 Pages Posted: 10 Feb 2004

See all articles by Daniel A. Rogers

Daniel A. Rogers

Portland State University - School of Business Administration

Date Written: September 1, 2006

Abstract

In addition to accomplishing traditional objectives, repurchases of stock may serve to hedge existing shareholders' price risk exposure associated with future expected obligations to make shares available to employees exercising stock options. This paper analyzes such a possibility by exploring the relation between repurchases and stock option grants. For a sample of firms that, on average, are active repurchasers, I document an economically significant relation between option grants and repurchases, after controlling for other possible effects. Firms that are more likely hedging option grant price risk exposure by repurchasing stock are larger, have lower leverage ratios, and spend more on research and development. Overall, the results suggest that repurchasing stock in conjunction with granting options may be indicative of optimal hedging as in Froot, Scharfstein, and Stein (1993).

Keywords: Employee stock option grants, stock repurchases, corporate risk management

JEL Classification: G35, G39, M52

Suggested Citation

Rogers, Daniel A., Repurchases, Employee Stock Option Grants, and Hedging (September 1, 2006). Available at SSRN: https://ssrn.com/abstract=498163 or http://dx.doi.org/10.2139/ssrn.498163

Daniel A. Rogers (Contact Author)

Portland State University - School of Business Administration ( email )

P.O. Box 751
Portland, OR 97207-0751
United States
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