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Executive Option Repricing, Incentives, and Retention

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  • Mark A. Chen

    (University of Maryland)

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    Abstract

    While many firms grant executive stock options that can be repriced, other firms systematically restrict or prohibit repricing. This article investigates the determinants of firms' repricing policies and the consequences of such policies for executive turnover and retention. Firms that have better internal governance, that use more powerful stock-based incentives, or that face less shareholder scrutiny are more likely to maintain repricing flexibility. Firms that restrict repricing are more vulnerable to voluntary executive turnover following stock price declines. When share price declines are severe, restricting firms appear to award unusually large numbers of new options. Copyright 2004 by The American Finance Association.

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    Bibliographic Info

    Article provided by American Finance Association in its journal The Journal of Finance.

    Volume (Year): 59 (2004)
    Issue (Month): 3 (06)
    Pages: 1167-1200

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    Handle: RePEc:bla:jfinan:v:59:y:2004:i:3:p:1167-1200

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    Cited by:
    1. Casamatta, Catherine & Guembel, Alexander, 2007. "Managerial Legacies, Entrenchment and Strategic Inertia," IDEI Working Papers 442, Institut d'Économie Industrielle (IDEI), Toulouse.
    2. Jin, Li & Kothari, S.P., 2008. "Effect of personal taxes on managers' decisions to sell their stock," Journal of Accounting and Economics, Elsevier, vol. 46(1), pages 23-46, September.
    3. Lustig, Hanno & Syverson, Chad & Van Nieuwerburgh, Stijn, 2011. "Technological change and the growing inequality in managerial compensation," Journal of Financial Economics, Elsevier, vol. 99(3), pages 601-627, March.
    4. Paolo Guasoni & Johannes Muhle-Karbe & Hao Xing, 2013. "Robust Portfolios and Weak Incentives in Long-Run Investments," Papers 1306.2751, arXiv.org.
    5. Andrea M. Maechler & Klaus Schaeck & Martin Cihák & Stéphanie Marie Stolz, 2009. "Who Disciplines Bank Managers?," IMF Working Papers 09/272, International Monetary Fund.
    6. Cheng, Shijun & Indjejikian, Raffi, 2009. "Managerial influence and CEO performance incentives," International Review of Law and Economics, Elsevier, vol. 29(2), pages 115-126, June.
    7. Cook, Douglas O. & Wang, Huabing (Barbara), 2011. "The informativeness and ability of independent multi-firm directors," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 108-121, February.

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