Executive stock options and the manipulated stock-price performance: evidence from retiring CEOs

Abstract

Previous studies have examined the manipulation of executive stock option awards and exercises, focusing on information timing by managers. In this paper, we investigate potential managerial manipulation of stock-price performance motivated by executive stock options. To distinguish performance manipulation from information timing, we examine stock-price performance surrounding the departure of retiring CEOs, whose stock options typically expire shortly after their departure and whose chances to manipulate option awards and exercises are minimized. Consistent with manipulated performance, we find significant abnormal stock returns in the months surrounding CEO departure for those with high option holdings, which are reversed shortly after CEO departure.