We analyze how 14,000 US top executives exercise their stock options. Factors suggested by existing theories have low or moderate explanatory power. Variables that model executives’ motive to diversify fare particularly poorly, whereas variables that capture reference-dependent preference, such as past highs and lows of stock prices, perform better.
By contrast, characteristics of option portfolios are of firstorder importance and suggest that managers have target ownership levels. Institutional features like vesting restrictions or blackout periods also have a first-order impact. We conclude that executives’ main motivations for exercising stock options early seem to be outside the scope of extant models.
We explore differences in the levels of dispersed ownership that lead to a second returns-based free float hedging factor, which augments the capital...
What makes independent directors perform their monitoring duty? One possible reason is that they are concerned about being sanctioned by regulators if...