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.
Repricing and Executive Turnover
Article first published online: 11 JAN 2007
Volume 42, Issue 1, pages 121–141, February 2007
How to Cite
Subramanian, N., Chakraborty, A. and Sheikh, S. (2007), Repricing and Executive Turnover. Financial Review, 42: 121–141. doi: 10.1111/j.1540-6288.2007.00164.x
- Issue published online: 11 JAN 2007
- Article first published online: 11 JAN 2007
- option repricing;
- executive compensation;
- incentive compensation;
- management turnover;
- CEO turnover
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.