Repricing and Executive Turnover


  • We are grateful to Christopher Baum, Lucian Bebchuk, Judith Chevalier, Li Jin, Wayne Guay, Charles Hadlock, Stewart Myers, Bente Villadson, Mike Weisbach, and other participants at the NBER 2003 Summer Meetings for useful remarks and suggestions. Krishna Sivaramakrishnan and Larissa Duzhansky provided able research assistance.

* Corresponding author: Cornerstone Research, 699 Boylston Street, 5th Floor, Boston, MA 02116; Phone: (617) 927-3000; Fax: (617) 927-3100; E-mail:


We examine whether the threat of executive turnover faced by a firm affects its decision to reprice stock options held by its executives. We estimate a model of voluntary turnover among top executives and show that the predicted turnover from this model is positively related to the probability of repricing. The relationship is robust to the inclusion of several known determinants of repricing. Our results are consistent with a model in which a tight labor market makes executives hard to replace, forcing firms to reprice stock options when they go underwater.