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
Date Written: August 14, 2008
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: Suggested Citation