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Out-of-the-Money CEOs: Private Control Premium and Option Exercises

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  • Vyacheslav Fos
  • Wei Jiang

Abstract

When a proxy contest is looming, the rate at which CEOs exercise options to sell (hold) the resulting shares slows down by 80% (accelerates by 60%), consistent with their desire to maintain or strengthen voting rights when facing challenges. Such deviations are closely aligned with features unique to proxy contests, such as the record dates and nomination status, and are more pronounced when the private benefits are higher or when the voting rights are more crucial. The distortions suggest that incumbents value their stocks higher than the market price when voting rights are valuable for defending control.

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  • Vyacheslav Fos & Wei Jiang, 2016. "Out-of-the-Money CEOs: Private Control Premium and Option Exercises," The Review of Financial Studies, Society for Financial Studies, vol. 29(6), pages 1549-1585.
    • Handle: RePEc:oup:rfinst:v:29:y:2016:i:6:p:1549-1585.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhv068
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    Cited by:

    1. Alex Edmans & Luis Goncalves-Pinto & Moqi Groen-Xu & Yanbo Wang, 2018. "Strategic News Releases in Equity Vesting Months," The Review of Financial Studies, Society for Financial Studies, vol. 31(11), pages 4099-4141.
    2. Oğuzhan Karakas & Mahdi Mohseni, 2021. "Staggered Boards and the Value of Voting Rights [One share-one vote: The empirical evidence]," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 10(3), pages 513-550.
    3. He, Yazhou Ellen, 2021. "Communications in proxy contests," Journal of Corporate Finance, Elsevier, vol. 69(C).
    4. Bebchuk, Lucian A. & Brav, Alon & Jiang, Wei & Keusch, Thomas, 2020. "Dancing with activists," Journal of Financial Economics, Elsevier, vol. 137(1), pages 1-41.
    5. Lucian A. Bebchuk & Alon Brav & Wei Jiang & Thomas Keusch, 2019. "Dancing With Activists," NBER Working Papers 26171, National Bureau of Economic Research, Inc.
    6. Vyacheslav Fos, 2017. "The Disciplinary Effects of Proxy Contests," Management Science, INFORMS, vol. 63(3), pages 655-671, March.
    7. Tim R. Adam & Valentin Burg & Tobias Scheinert & Daniel Streitz, 2020. "Managerial Biases and Debt Contract Design: The Case of Syndicated Loans," Management Science, INFORMS, vol. 66(1), pages 352-375, January.
    8. Randall A. Heron & Erik Lie, 2017. "Do Stock Options Overcome Managerial Risk Aversion? Evidence from Exercises of Executive Stock Options," Management Science, INFORMS, vol. 63(9), pages 3057-3071, September.
    9. Fos, Vyacheslav & Kahn, Charles, 2019. "The Threat of Intervention," CEPR Discussion Papers 13654, C.E.P.R. Discussion Papers.

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