The Opportunism Timing Of Stock Option Exercise By The Executives

The agent problem has been troubling modern enterprises.After the split share structure reform,equity incentives system in China has been gradually important.However,the timing of announcements of stock options incentive plans is still widespread,because of the defects of stock market and the principal agent problem.Most listed companies chose the stock option plan to incite the managements.So using the uniformly exercise samples from 2007 to 2015,this paper investigates the opportunism timing of stock option exercise by the executives.We find that:(1)In order to maximize the economic profits,the managers manipulated the exercise date that exercised the options at the lowest price during a month.And the accumulative raw returns obviously indicates the “V-Shape” within a [-30,+30] window surrounding the exercise date,which means there are significant negative(positive)returns before(after)the exercise date.(2)The tax saving hypothesis could explain the motivation of the manipulation of option exercise date.The estimated personal tax savings,CEO as a chairman of the board,and the growth-type companies would increase the likelihood of selecting the lowest price to exercise the options during a month.(3)The univariate tests don’t support the private information hypothesis,in which the accounting profits and the cash flow aren’t significant difference between the pre-exercise and post-exercise date.(4)The firms don’t manipulate the information disclosure which means the executives don’t increase the numbers of the bad(good)news before(after)the exercise date.(5)Before the exercise date,the change of comparative volume in the timing samples is significant high than the other samples,which indicate that the timing behavior is accomplished by the insider trading.Overall,the institutions of the stock incentives reduce but not eliminate the opportunism behaviors of the executives.This paper contributes to further understand the executives’ self-interest behaviors during option exercise,and also has important policy implications to restrict the executives to manipulate the option exercise date.This article from the perspective of tax saving and internal information concerns the management of listed companies in stock option incentive in the process of exercise into the behavior motive and means,a satellite of the stock option incentive right study provides empirical evidence of the Chinese market,but also enrich the domestic line right into the behavior of the listed company management research.Overall,this article research conclusion to further perfect the system of equity incentive plan specifications and inhibiting management include the exercise behavior have important policy implications.