How Do Managers Behave in Stock Option Plans? Clinical Evidence from Exercise and Survey Data

40 Pages Posted: 13 Mar 2006 Last revised: 4 Feb 2014

See all articles by Martin Weber

Martin Weber

University of Mannheim - Department of Banking and Finance

Zacharias Sautner

Frankfurt School of Finance & Management gemeinnützige GmbH; European Corporate Governance Institute (ECGI)

Date Written: August 14, 2008

Abstract

We use unique data to empirically analyse the behavior of senior managers in a distinct stock option plan. Combining individual-level exercise data with very detailed questionnaire data, we study how these managers exercise their stock options. Moreover, we investigate which rational and behavioral factors explain differences in the observed exercise behavior. We find that individuals exercise options very early and in a few large transactions. Risk aversion and holdings of company stock cannot explain the exercise behavior in our data. We provide interesting and new results that suggest that exercise decisions depend on the psychological factors miscalibration and mental accounting.

Keywords: Employee Stock Options, Exercise Behavior, Stock Selling Behavior, Correlation of Economic

JEL Classification: M41, M52, M55, G39

Suggested Citation

Weber, Martin and Sautner, Zacharias, How Do Managers Behave in Stock Option Plans? Clinical Evidence from Exercise and Survey Data (August 14, 2008). Journal of Financial Research, 32, 2009, 123-155 . Available at SSRN: https://ssrn.com/abstract=890177

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

Zacharias Sautner (Contact Author)

Frankfurt School of Finance & Management gemeinnützige GmbH ( email )

Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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