Sandra Renfro Callaghan
Texas Christian University
Chandra Subramaniam
Texas Christian University
Stuart Youngblood
Texas Christian University
Abstract: This paper examines whether executive stock option repricing increases top management retention and subsequently improves firm performance. Using a sample of 201 repricing events and a control sample of non-repricing firms, executive turnover is examined in the four years following repricing. Both univariate and regression analyses suggest that stock option repricing results in greater executive retention. Specifically, CEO retention is significantly greater for repricing firms relative to non-repricing firms for three years following repricing and non-CEO executive retention is significantly greater for the two-year period following repricing.
In addition, we find operating and stock price performance of repricing firms to be worse in the post-repricing period compared to the pre-repricing period. However, while post-repricing industry adjusted performance is positive and marginally significant, control-firm adjusted performance is not significant. Hence, while we find support that option repricing improve executive retention, we are unable to document any significant improvement in subsequent firm performance for repricing firms.
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