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Information, Insider Trading, Executive Reload Stock Options, Incentives, and Regulation

Author

Listed:
  • David B Colwell

    (UNSW Business School - UNSW - University of New South Wales [Sydney])

  • David Feldman

    (UNSW Business School - UNSW - University of New South Wales [Sydney])

  • Wei Hu

    (Curtin University)

  • Monique Pontier

    (IMT - Institut de Mathématiques de Toulouse UMR5219 - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - INSA Toulouse - Institut National des Sciences Appliquées - Toulouse - INSA - Institut National des Sciences Appliquées - UT - Université de Toulouse - UT2J - Université Toulouse - Jean Jaurès - UT - Université de Toulouse - UT3 - Université Toulouse III - Paul Sabatier - UT - Université de Toulouse - CNRS - Centre National de la Recherche Scientifique)

Abstract

We introduce a theoretical model of executives with insider information (insider-executives) granted incentivizing executive stock options (ESO). We show that while insider-executives optimize their wealth, using their insider information nullies ESO incentives, misaligning their and shareholders' interests. We oer realigning methods: granting insider-executives reload stock options (RSO) and imposing blackout trading periods (blackouts). Eective blackouts keep insider-executives incentivized without being overly restrictive, i.e., without reducing their welfare below that of outsiders. We introduce RSO pricing for insider-executives and oer policy implications: reestablishing the currently out-of-favor RSO, and allowing rms, not regulators, to set blackout periods on securities they issue.

Suggested Citation

  • David B Colwell & David Feldman & Wei Hu & Monique Pontier, 2023. "Information, Insider Trading, Executive Reload Stock Options, Incentives, and Regulation," Working Papers hal-04116818, HAL.
    • Handle: RePEc:hal:wpaper:hal-04116818
    Note: View the original document on HAL open archive server: https://hal.science/hal-04116818
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    References listed on IDEAS

    as
    1. Amendinger, Jürgen & Imkeller, Peter & Schweizer, Martin, 1998. "Additional logarithmic utility of an insider," Stochastic Processes and their Applications, Elsevier, vol. 75(2), pages 263-286, July.
    2. Carpenter, Jennifer N., 1998. "The exercise and valuation of executive stock options," Journal of Financial Economics, Elsevier, vol. 48(2), pages 127-158, May.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Executive Stock Options; Insider Information; Constrained Portfolio Optimization; Non-Hedgeable; Non-Transferable; Reload; Enlarged Filtration;
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