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 | Size | Format | |
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SSRN-id492302.pdf | 262.74 kB | Adobe PDF | View/Open |
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