Private Information and the Exercise of Executive Stock Options

Brooks, Robert; Chance, Don M.; Cline, Brandon N.

doi:10.2139/ssrn.804564

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Private Information and the Exercise of Executive Stock Options

45 Pages Posted: 28 Sep 2005 Last revised: 30 Oct 2007

See all articles by Robert Brooks

Don M. Chance

Louisiana State University, Baton Rouge - Department of Finance; Louisiana State University, Baton Rouge - E.J. Ourso College of Business Administration

Brandon N. Cline

Mississippi State University

Date Written: October 26, 2007

Abstract

We find evidence that executives use private information in exercising stock options. The most informed executives exercise early, exercise after the vest date rather than at the vest date, do not exercise in anticipation of dividends, exercise a high percentage of their options, sell a large proportion of acquired stock, and exercise and leave the firm. The most costly options to exercise are associated with the most private information, and the least costly are associated with the least private information. We also find that higher ranked executives show significantly greater exploitation of private information than do lower ranked executives.

Keywords: Executive stock options, stock options, option exercises, private information, executive compensation, insider trading, insider information

JEL Classification: G11, G14, G32, G39, M52

Suggested Citation: Suggested Citation

Brooks, Robert E. and Chance, Don M. and Cline, Brandon N., Private Information and the Exercise of Executive Stock Options (October 26, 2007). Available at SSRN: https://ssrn.com/abstract=804564 or http://dx.doi.org/10.2139/ssrn.804564