Security Issue Timing: What Do Managers Know, and When Do They Know it?

41 Pages Posted: 17 Nov 2006 Last revised: 17 Dec 2009

See all articles by Dirk Jenter

Dirk Jenter

London School of Economics & Political Science (LSE) - Department of Finance; Centre for Economic Policy Research (CEPR)

Katharina Lewellen

Dartmouth College - Tuck School of Business

Jerold B. Warner

University of Rochester – Simon Business School

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2007

Abstract

We study put option sales on company stock by large firms. An often cited motivation for these transactions is market timing, and managers’ decision to issue puts should be sensitive to whether the stock is undervalued. We provide new evidence that large firms successfully time security sales. In the 100 days following put option issues, there is roughly a 5% abnormal stock price return, with much of the abnormal return following the first earnings release date after the sale. Direct evidence on put option exercises reinforces these findings: exercise frequencies and payoffs to put holders are abnormally low.

Keywords: corporate pu option sales, marketing timing

JEL Classification: G32, G35

Suggested Citation

Jenter, Dirk and Lewellen, Katharina and Warner, Jerold B., Security Issue Timing: What Do Managers Know, and When Do They Know it? (July 1, 2007). Simon School Working Paper No. FR 06-12, MIT Sloan Research Paper No. 4654-07, Rock Center for Corporate Governance Working Paper No. 25, Available at SSRN: https://ssrn.com/abstract=945471 or http://dx.doi.org/10.2139/ssrn.945471

Dirk Jenter

London School of Economics & Political Science (LSE) - Department of Finance ( email )

United Kingdom

HOME PAGE: http://personal.lse.ac.uk/jenter/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Katharina Lewellen (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Jerold B. Warner

University of Rochester – Simon Business School ( email )

Carol Simon Hall 3-160H
Rochester, NY 14627
United States
585-275-2678 (Phone)
585-442-6323 (Fax)

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