Inside Information and the Exercise of Employee Stock Options: New Evidence

Posted: 6 Apr 2005

See all articles by Joel S. Sternberg

Joel S. Sternberg

Clark University

Hugh Douglas Witte

University of Missouri at Columbia - Department of Finance

Date Written: March 2005

Abstract

Owners of employee stock options can convert future stock appreciation from ordinary income to long-term capital gains if they exercise their options and subsequently hold the acquired shares for one year and one day. This provides an incentive for the early exercise of employee stock options if the owner is sufficiently optimistic about future stock performance. We examine the period 1997-2000 for Form 4 filings in which officers and directors exercised employee stock options more than one year before expiration and then held a majority of the acquired shares. We find statistically significant positive abnormal returns in the months subsequent to the option exercise suggesting that favorable private information guided the timing of the exercise.

Keywords: Employee stock options, private information

JEL Classification: G11, G13, G14

Suggested Citation

Sternberg, Joel S. and Witte, Hugh Douglas, Inside Information and the Exercise of Employee Stock Options: New Evidence (March 2005). Available at SSRN: https://ssrn.com/abstract=697621

Joel S. Sternberg (Contact Author)

Clark University ( email )

950 Main Street
Worcester, MA 01610
United States

Hugh Douglas Witte

University of Missouri at Columbia - Department of Finance ( email )

403 Cornell Hall
Columbia, MO 65211
United States
573-882-2371 (Phone)

HOME PAGE: http://business.missouri.edu/People/FacStaff/finfac/index.htm#fin_witte

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
712
PlumX Metrics