Altering the Terms of Executive Stock Options

摘要: This paper examines the practice of resetting terms previously-issued executive stock options. We identify properties typical reset option, characterize firms that have options, and develop a model to value options may be reset. In our sample 396 executives whose had in 1992-95 period, large majority ad exercise prices market price. resulted reduction option's price by about 40%. Slightly less than half these also their maturities extended, generally receiving new expiration 10 years. find has strong negative relationship with firm performance even after correcting for industry performance. Resetting is significantly more common among small firms. However, few other industry- or firm-specific factors appear matter. Finally, we possibility does not impact on ex-ante an option award, but ex-post gain can substantial.