AGENCY ISSUES IN STOCK OPTION ‘6 AND 1’ EXCHANGE: REVISITED

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Abstract

Prior studies (Coles et al., 2006; Carter and Lynch, 2007) do not find significant evidence that managers’ actions reduce stock price prior to the option reissue date in the stock option ‘6 and 1’ exchanges. This paper reinvestigates the stock price pattern with a larger sample and a better control group. We find that stock return prior to option reissue date is significantly lower for option exchange programs that include top executives than who do not. Following the option reissue, the stock return is higher for option exchange programs that include top executives than who do not. This finding suggests that top management may have incentives to increase future option payouts by holding down stock price from increasing.

Keywords: Agency Issue, ‘6 and 1’ Exchange, ‘Executive’ Option Reissues, Stock Return

How to cite this paper: Park, J. D., & Subramaniam, C. (2013). Agency issues in stock option ‘6 and 1’ exchange: revisited. Corporate Ownership & Control, 11(1-1), 151-160. https://doi.org/10.22495/cocv11i1c1art3