Stock Option Exercise, Earnings Management, and Abnormal Stock Returns

摘要: This essay uses a large sample to examine whether stock option plans provide incentives executives manage earnings when exercising their options. The evidence presented is consistent with hypothesis where managers use accruals shift increase the price prior and during exercise periods. However, results indicate that magnitude of management related options may be limited. Reported income peaks at announcement immediately preceding activity followed by both reversals in discretionary as well negative abnormal returns post-exercise period for up one year. Current range from 0.3% 0.62% assets, depending upon accrual model, quarterly activity. Over two quarters following exercise, firms experience small but statistically significant on average approximately -3%. return shown cross-sectionally positively pre-exercise proxies, even after adjusting Sloan anomaly. I find similar expiration weaker sales unrelated exercise.