Stock Option Incentive Plan Authorized To Exercise Before And After Information Disclosure

This paper investigates stock price behavior and corporate disclosure patterns around the draft announcement dates and the exercise dates of stock option plans.Foreign research finds that there are significant abnormal stock price returns around the grant dates and the exercise dates, and attributes it to the disclosure manipulations by managers who intend to maximize their compensation. However, considering China's specific institutional environment, this paper investigates stock price behavior and corporate disclosure patterns around the draft announcement dates and the exercise dates of stock option plans. The paper finds that there is significant negative abnormal return before the draft announcement date and significant positive abnormal return after the draft announcement date. The paper also finds that there is positive abnormal return both before and after the exercise date, but there is also temporary negative abnormal return before the exercise date. Further, the paper shows there is asymmetric distribution for good news and bad news frequencies around the draft announcement date and the exercise date, and finds that managers manipulate the disclosure of the corporate information, that is, accelerate bad news announcements and delay good news announcements, so as to manipulate the stock price. Additionally, this paper also provides two cases showing how the managements use disclosures to seek favorable stock prices on the exercise dates and on their selling dates.This paper contributes to the researches on strategic corporate information disclosure around stock option dates by providing empirical evidence from China. It adds to the topic of information-based stock price manipulation.