Research On Information Disclosure Before And After The Exercise Of CEO Stock Option

CEO stock option incentive,because of its synergistic effect,has been playing a positive role in combining the interests of both operator and owner of a certain company.It has been enjoying a fast development in developed countries like America,which increases the value of companies and contributes to the innovation.However,after witnessing the scandal of Enron and WorldCom,in which the CEO stock option incentive has been manipulated to earn the abnormal interests for the team of managers,the CEO stock option incentive has been treated as full of disadvantages.CEO stock option incentive has become popular in China since 2000,while at that time the corresponding law was not fully prepared,thus posing negative effect on the development of CEO stock option incentive.After 2006,CSRC has published several laws in order to make the use of CEO stock option better,and from then on,it has been enjoying a fast and sustainable development.According to the law of tax in China,those who choose to exercise their stock option would have to pay tax depending on the difference between exercise price and that day's stock price,which means that one will have to pay higher tax once the company's stock price is higher.What is more,one cannot sell the stock immediately and have to wait at least 6 months,so these exists motivation of tax saving in the exercise of CEO stock option.Based on this,this paper documents the pattern of information disclosure before and after the exercise of CEO stock option and we find that company tends to publish bad news before the exercise of stock option and good news after that,also,the data of earning management shows some evidence.On the other hand,we use Logit model to study the relationship between the pattern of information disclosure and the possible elements from different aspects,and we argue that a company with lower concentration of stock,higher percentage of independent director and boards of supervisors will tend to publish bad news before the exercise of stock option and it is interesting to find that stated-owned company tend to publish bad news before the exercise of stock option as well.After the exercise of stock option,higher percentage of independent director and boards of supervisors have a positive effect on eliminating the possible opportunistic behaviors.At the end of this paper,we argue that it is urgent to apply other different kinds of stock ownership incentive into practice and the CSRC should publish more law to manage the information disclosure.