Good Timing: CEO Stock Option Awards and Company News Announcements



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    • Stern School of Business, New York University. I have received helpful comments from Edwin Elton, Zsuzsanna Fluck, David Ikenberry, Kose John, René Stulz (the editor), Michael Weisbach, Karen Wruck, and two anonymous referees. I thank seminar participants at NYU, the National Bureau of Economic Research, the American Finance Association annual meeting, the Utah Winter Finance Conference, and Michigan State University. I appreciate research assistance by Anand Srinivasan and Shlomith Zuta. I gratefully acknowledge the contribution of I/B/E/S International Inc. for providing earnings per share forecast data, available through the Institutional Brokers Estimate System. This data has been provided as part of a broad academic program to encourage earnings expectations research.


This article analyzes the timing of CEO stock option awards, as a method of investigating corporate managers' influence over the terms of their own compensation. In a sample of 620 stock option awards to CEOs of Fortune 500 companies between 1992 and 1994, I find that the timing of awards coincides with favorable movements in company stock prices. Patterns of companies' quarterly earnings announcements are consistent with an interpretation that CEOs receive stock option awards shortly before favorable corporate news. I evaluate and reject several alternative explanations of the results, including insider trading and the manipulation of news announcement dates.