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How Do Managers Behave In Stock Option Plans? Clinical Evidence From Exercise And Survey Data

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  • Zacharias Sautner
  • Martin Weber

Abstract

We use unique case study data to analyze the behavior of top managers in an executive stock option plan. We gather questionnaire data on the managers' traits and combine it with exercise data. Managers in our sample expect low volatilities (compared to historical estimates) and are well diversified and modestly risk averse. This implies that the value–cost wedge of options can be smaller than usually assumed. The exercise decisions vary with expected volatility, managerial wealth, and mental accounting. Managers expecting lower volatility exercise earlier. This result is consistent with the predictions of expected utility models using our managers' survey parameters.

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  • Zacharias Sautner & Martin Weber, 2009. "How Do Managers Behave In Stock Option Plans? Clinical Evidence From Exercise And Survey Data," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 32(2), pages 123-155, June.
    • Handle: RePEc:bla:jfnres:v:32:y:2009:i:2:p:123-155
    DOI: 10.1111/j.1475-6803.2009.01245.x
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    2. Michailova, Julija, 2010. "Overconfidence and bubbles in experimental asset markets," MPRA Paper 26388, University Library of Munich, Germany.
    3. Jakob Infuehr & Volker Laux, 2022. "Managerial Optimism and Debt Covenants," Journal of Accounting Research, Wiley Blackwell, vol. 60(1), pages 353-371, March.
    4. Liu, Yin & Neely, Pamela & Karim, Khondkar, 2022. "The impact of CFO gender on corporate overinvestment," Advances in accounting, Elsevier, vol. 57(C).
    5. Otto, Clemens A., 2014. "CEO optimism and incentive compensation," Journal of Financial Economics, Elsevier, vol. 114(2), pages 366-404.
    6. Hatoum, Khalil & Moussu, Christophe & Gillet, Roland, 2022. "CEO overconfidence: Towards a new measure," International Review of Financial Analysis, Elsevier, vol. 84(C).
    7. Adam, Tim R. & Fernando, Chitru S. & Golubeva, Evgenia, 2015. "Managerial overconfidence and corporate risk management," Journal of Banking & Finance, Elsevier, vol. 60(C), pages 195-208.
    8. Driouchi, Tarik & Trigeorgis, Lenos & So, Raymond H.Y., 2020. "Individual antecedents of real options appraisal: The role of national culture and ambiguity," European Journal of Operational Research, Elsevier, vol. 286(3), pages 1018-1032.
    9. Yuhong Liu & I-Ming Jiang & Meng-I Tsai, 2019. "Influence of Managers’ Subjective Judgments on Project Abandonment Decision Making," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 18(02), pages 419-443, March.

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