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Lucky CEOs and Lucky Directors





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    • Bebchuk is with the Harvard Law School and the National Bureau of Economic Research, Grinstein is with the Johnson School of Management, Cornell University, and Peyer is with INSEAD. This paper integrates two discussion papers circulated earlier, “Lucky CEOs” and “Lucky Directors.” For helpful comments and conversations, we are grateful to an anonymous referee and associate editor, John Graham (the Editor), Nadine Baudot-Trajtenberg, John Bizjak, Alma Cohen, Charles Hadlock, Randy Heron, Ira Kay, Erik Lie, MP Narayanan, and workshop participants at the NBER corporate finance meeting, the American Economic Association and American Law and Economic Association annual meetings, the University of Delaware Symposium on Backdating of Stock Options, The University of Virginia Law and Finance Conference, Harvard, the Herzlia Interdisciplinary Center, London Business School, Tel-Aviv University, and Yale School of Management. For financial support, we would like to thank the John M. Olin Center for Law, Economics, and Business, the Harvard Law School Program on Corporate Governance, and the Guggenheim Foundation.


We study the relation between opportunistic timing of option grants and corporate governance failures, focusing on “lucky” grants awarded at the lowest price of the grant month. Option grant practices were designed to provide lucky grants not only to executives but also to independent directors. Lucky grants to both CEOs and directors were the product of deliberate choices, not of firms’ routines, and were timed to make them more profitable. Lucky grants are associated with higher CEO compensation from other sources, no majority of independent directors, no outside blockholder on the compensation committee, and a long-serving CEO.