How Do Managers Behave in Stock Option Plans? : Clinical Evidence from Exercise and Survey Data

Sautner, Zacharias ; Weber, Martin

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URN: urn:nbn:de:bsz:180-madoc-22819
Document Type: Working paper
Year of publication: 2008
The title of a journal, publication series: None
Publication language: English
Institution: Business School > Sonstige - Fakultät für Betriebswirtschaftslehre
MADOC publication series: Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre (Weber) > Publications
Subject: 330 Economics
Classification: JEL: M41 M52 M55 G39 ,
Subject headings (SWD): Aktienmarkt , Anlageverhalten , Entscheidungsverhalten
Keywords (English): Executive Stock Options , Exercise Behavior , Volatility , Individual Characteristics
Abstract: We use unique case study data to analyze the behavior of top managers in a distinct executive stock option plan. We gather extensive questionnaire data on the managers' traits (e.g. on their risk aversion, diversification, and volatility forecasts) and combine it with individual-level exercise data. Our results show that the managers in our sample expect very low volatilities (compared with historical estimates), are well diversified and modestly risk averse. This implies that the value-cost wedge of options can be smaller than usually assumed. Options are exercised very early and in large transactions. We provide results that suggest that exercise decisions vary with expected volatility, managerial wealth, and mental accounting. In particular, we find that managers who expect lower volatility exercise earlier. We show that this result is consistent with the predictions of expected utility models using our managers' survey parameters.
Additional information: Available at SSRN:

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