Skip navigation
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

Files in This Item:
File Description SizeFormat 
SSRN-id492302.pdf262.74 kBAdobe PDFView/Open


Items in FDA are protected by copyright, with all rights reserved, unless otherwise indicated.