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Does Corporate Governance Curb Managers’ Opportunistic Behavior of Exploiting Inside Information for Early Exercise of Executive Stock Options?

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  • Chin-Chen Chien

    (Department of Accountancy, National Cheng Kung University, Tainan City 701, Taiwan)

  • Cheng-Few Lee

    (Department of Finance and Economics, Rutgers University, New Brunswick, NJ 08901-8554, USA)

  • She Chih Chiu

    (Department of Accountancy, National Cheng Kung University, Tainan City 701, Taiwan)

Abstract

This paper aims to investigate the role of corporate dividend policy and corporate governance in managerial timing decisions with regard to large exercise of executive stock options (ESOs). The findings indicate that the motivations behind managers’ decisions to exercise abnormally large ESOs vary depending on the strength of the related corporate governance mechanisms. Managers of weakly governed companies exploit abnormal earnings management when timing large exercises of ESOs. In contrast, managers of well-governed companies behave rationally in timing large exercises of ESOs, carrying them out in years in which their companies significantly raise dividend payouts.

Suggested Citation

  • Chin-Chen Chien & Cheng-Few Lee & She Chih Chiu, 2016. "Does Corporate Governance Curb Managers’ Opportunistic Behavior of Exploiting Inside Information for Early Exercise of Executive Stock Options?," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 19(01), pages 1-22, March.
    • Handle: RePEc:wsi:rpbfmp:v:19:y:2016:i:01:n:s0219091516500065
    DOI: 10.1142/S0219091516500065
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