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Stock Option Repricing and Its Alternatives: An Empirical Examination

Published online by Cambridge University Press:  19 October 2009

Swaminathan Kalpathy
Swaminathan Kalpathy*
Affiliation:
Cox School of Business, Southern Methodist University, PO Box 750333, Dallas, TX 75275. [email protected]
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Abstract

In this paper I examine the likelihood of CEO stock option repricing and its alternatives: namely, option grant, stock grant, and “do nothing.” Multinomial logit results suggest that firms reprice options to increase sensitivity of pay to stock price and to temper down sensitivity of pay to volatility. Moreover, repricing firms are younger and more concentrated in industries where human capital is important. Finally, I find no evidence that internal governance or executive conflicts of interest are relevant in explaining repricing. My results indicate that repricing is motivated by incentive alignment and retention, and not by agency cost considerations.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 44 , Issue 6 , December 2009 , pp. 1459 - 1487
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2009

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