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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27566
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| Title: | Private Information, Earnings Manipulations, and Executive Stock Option Exercises |
| Authors: | Bartov, Eli
Mohanram, Partha |
| Keywords: | Executive compensation
Incentives
Stock option exercises
Earnings management |
| Issue Date: | Apr-2004 |
| Series/Report no.: | Eli Bartov-06 |
| Abstract: | This paper investigates the decision by top-level executives of more
than 1,200 public corporations to exercise large stock option awards in
the period 1992-2001. We hypothesize and find that abnormally large
option exercises predict stock return future performance. We then
hypothesize that this predictive ability represents private information
about disappointing earnings in the post-exercise period. Consistent
with this hypothesis we find that abnormally positive earnings
performance in the pre-exercise period turns to disappointing earnings
performance in the post-exercise period, and that this pattern comes as
a surprise to even sophisticated market participants (financial
analysts). We also hypothesize and find that the disappointing earnings
in the post-exercise period represent a reversal of inflated earnings in
the pre-exercise period. Collectively, these findings suggest that the
private information used by top-level executives to time abnormally
large exercises follows from earnings management so as to increase the
cash payout of exercises. |
| URI: | http://hdl.handle.net/2451/27566 |
| Appears in Collections: | Accounting Working Papers
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