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Stock Market Reaction and Stock Option Plans: Evidence from Germany

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  • Christian Langmann
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    Abstract

    Stock option plans are probably one of the most controversially discussed compensation elements of the past few years. I look at stock option plans issued by German companies between 1996 and 2002. In addition to a descriptive analysis of 44 launched plans, I perform an event study covering 17 announcements of stock option plan adoptions during this period. The findings show significant positive stock market reactions of around 1% on the day of announcement in the press. Thus, stock option plans appear to be an instrument whose effect outweighs its cost of increasing shareholder value. Significant positive abnormal returns in the weeks preceding the announcements indicate that the timing of stock options coincides with positive market developments just before the adoption of the stock option plans is announced.

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    Bibliographic Info

    Article provided by LMU Munich School of Management in its journal Schmalenbach Business Review.

    Volume (Year): 59 (2007)
    Issue (Month): 1 (January)
    Pages: 85-106

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    Handle: RePEc:sbr:abstra:v:59:y:2007:i:1:p:85-106

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    Related research

    Keywords: Compensation; Event Study; Stock Option;

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    Cited by:
    1. Carpenter, Jennifer N. & Stanton, Richard & Wallace, Nancy, 2010. "Optimal exercise of executive stock options and implications for firm cost," Journal of Financial Economics, Elsevier, vol. 98(2), pages 315-337, November.

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