Share repurchases, option exercises, and executives opportunistic behavior

This dissertation examines two research questions. The first question examines whether executives opportunistically repurchase shares to boost stock prices prior to exercising their options. The second question examines whether executives are involved in insider trading by exercising options around share repurchase announcements. Traditionally, the share repurchase literature has focused on the "positive" side of share repurchases. This literature revealed several reasons for share repurchases such as undervalued shares, minimizing earnings per share dilution, and tax advantage (Dittmar, 2000).; Until recently, only a few studies looked at the opportunistic or "negative" side of share repurchases. Asthana et al. (2004), Myers and Skinner (2002), Bens et al. (2003), and Hribar et al. (2004) examine and report that firms are able to manage earnings per shares (EPS) through share repurchases under certain conditions. The sample employed in this study consists of Financial, Executives, Institutional Holdings, and Cost of Debt Capital data for the years 2000-2002, which is used in the statistical analyses to test the first research question. The final sample consists of 577 share repurchases firm-year observations used in the analyses. Insider Trading data for the years 1995-2002 are also used to test the second research question.; The methodology used in this dissertation utilizes simultaneous equations to analyze data for the first research question. Event study methodology is used with six time windows starting with 30 days to 180 days on either side of the announcements in order to analyze data for the second research question. I report mixed results for the first research question. More specifically, I document significant (insignificant) results of executives' opportunistic share repurchases prior to the exercise of options which use the value of share repurchases (change in number of shares outstanding) as a proxy. I document significant results consistent with insider trading around share repurchase announcements using a single-announcement sample and weaker evidence of insider trading using a multiple-announcement sample. To summarize, this dissertation presents evidence that is consistent with executives' opportunistic behavior to increase prices prior to exercising options. Also, I report evidence consistent with insider trading around share repurchase announcements.