Eli Ofek, David Yermack
ABSTRACT
We find that executives sell shares of previously owned stock after
receiving equity-based incentive compensation, counteracting boards' attempts
to tie their wealth to firm value. Executives sell stock during years in
which they receive new stock options or restricted stock, and some evidence
indicates further selling over time if options move into-the-money. When
options are exercised, managers sell a large majority of shares acquired.
Effects are strongest for executives who already hold many shares, while
stock-based compensation does appear to increase the holdings of managers
with low ownership. Although valuation theorists who study executive compensation
frequently assume that executives cannot hedge the risks of stock-based
pay, our research provides evidence to the contrary.
Subject: Corporate Governance/Agency Theory (Empirical)
Ofek: (212) 998-0356 eofek@stern.nyu.edu
Yermack: (212) 998-0357 dyermack@stern.nyu.edu
To request a copy of this paper click here
The Finance Department Working Paper Series has been generously sponsored
by