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Executive Loans

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  • Kahle, Kathleen M.
  • Shastri, Kuldeep

Abstract

This paper analyzes the characteristics and impact of loans made to executives for stock purchase, option exercise, and relocation. We find that loans made to assist executives in purchasing stock or exercising options are larger and have higher interest rates than relocation loans. All types of loans, however, are issued at below-market interest rates, on average. We also find that while stock purchase loans are given to managers with low existing ownership, option exercise loans are given to managers with high existing ownership and high cash compensation. Finally, our results indicate that executive stock ownership increases following stock purchase and option exercise loans. For managers as a whole, a loan that enables a manager to buy 100 shares of stock results in only an eight share increase in ownership. However, the relation between ownership changes and stock purchase loans is much stronger for low ownership managers.

Suggested Citation

  • Kahle, Kathleen M. & Shastri, Kuldeep, 2004. "Executive Loans," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(4), pages 791-811, December.
    • Handle: RePEc:cup:jfinqa:v:39:y:2004:i:04:p:791-811_00
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    Cited by:

    1. Amzaleg Yaron & Ben- Zion Uri & Rosenfeld Ahron, 2016. "Tunneling or Propping? Evidence for Related Party Transactions in Israel," International Journal of Management Sciences, Research Academy of Social Sciences, vol. 7(6), pages 332-349.
    2. Wang, Hongxia & Davidson III, Wallace N. & Wang, Xiaoxin, 2010. "The Sarbanes-Oxley Act and CEO tenure, turnover, and risk aversion," The Quarterly Review of Economics and Finance, Elsevier, vol. 50(3), pages 367-376, August.
    3. Korczak, Piotr & Liu, Xicheng, 2014. "Managerial shareholding policies and retention of vested equity incentives," Journal of Empirical Finance, Elsevier, vol. 27(C), pages 116-129.
    4. Cheung, Yan-Leung & Qi, Yuehua & Raghavendra Rau, P. & Stouraitis, Aris, 2009. "Buy high, sell low: How listed firms price asset transfers in related party transactions," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 914-924, May.

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