Lucky Directors

49 Pages Posted: 18 Dec 2006 Last revised: 14 Dec 2010

See all articles by Lucian A. Bebchuk

Lucian A. Bebchuk

Harvard Law School; European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management; Reichman University - Interdisciplinary Center (IDC) Herzliyah; European Corporate Governance Institute (ECGI)

Urs Peyer

INSEAD - Finance

Multiple version iconThere are 2 versions of this paper

Date Written: 2006


The analysis of this paper was subsequently combined with that of our companion paper “Lucky CEOs,” The combined paper, titled “Lucky CEOs and Lucky Directors,” is available on SSRN at and was published at Journal of Finance, Vol. 65, No. 6, pp. 2363-2401, 2010.

While prior work has focused on the opportunistic timing of executives' grants, we provide in this paper evidence that outside directors' option grants have also been favorably timed to an extent that cannot be fully explained by sheer luck. Examining events in which public firms granted options to outside directors during 1996-2005, we find that 9% of director grant events were lucky grant events falling on days with a stock price equal to a monthly low. We estimate that about 800 lucky grant events owed their status to opportunistic timing, and that about 460 firms and 1400 outside directors were associated with grant events produced by such timing. Director grant events were preceded by negative abnormal returns and followed by positive abnormal returns. There is evidence that the opportunistic timing of director grant events has been to a substantial extent the product of backdating and not merely spring-loading based on private information. We find that directors' luck has been correlated with executives' luck. We also find that director grant events were more likely to be lucky when the potential gains from such luck were larger, when the firm had more entrenching provisions protecting insiders from the risk of removal, and when the board did not have a majority of independent directors.

Because our analysis suggests that the existence of lucky director grants is a variable that can be useful to research studying firms’ governance and decision-making, we make available on the website of the Harvard Program on Corporate Governance a dataset of director luck indicators based on our work.

Keywords: Executive compensation, corporate governance, stock options, backdating, spring loading, inside information, CEO, independent directors, outside directors, entrenchment

JEL Classification: D23, G32, G38, J33, J44, K22, M14

Suggested Citation

Bebchuk, Lucian A. and Grinstein, Yaniv and Grinstein, Yaniv and Peyer, Urs C., Lucky Directors (2006). Journal of Finance, 2010 (published as "Lucky CEOs and Lucky Directors"), Harvard Law and Economics Discussion Paper No. 573, Available at SSRN:

Lucian A. Bebchuk (Contact Author)

Harvard Law School ( email )

Cambridge, MA 02138
United States
617-495-3138 (Phone)
617-812-0554 (Fax)


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
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National Bureau of Economic Research (NBER) ( email )

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Yaniv Grinstein

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Sage Hall
Ithaca, NY 14853
United States
607-255-8686 (Phone)
607-254-4590 (Fax)

Reichman University - Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 4610101

European Corporate Governance Institute (ECGI)

B-1050 Brussels

Urs C. Peyer

INSEAD - Finance ( email )

Boulevard de Constance
F-77305 Fontainebleau Cedex
+33 1 6072 4178 (Phone)
+33 1 6072 4045 (Fax)

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