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

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

Dirk Jenter

London School of Economics; National Bureau of Economic Research (NBER); CEPR

Katharina Lewellen

Tuck School of Business at Dartmouth

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 ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CEPR ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Katharina Lewellen (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603-646-8247 (Phone)

HOME PAGE: http://oracle-www.dartmouth.edu/dart/groucho/tuck_faculty_and_research.faculty_profile?p_id=QE2X25

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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