Working Paper: NBER ID: w12811
Authors: Lucian A. Bebchuk; Yaniv Grinstein; Urs Peyer
Abstract: While prior empirical work and much public attention have focused on the opportunistic timing of executives' grants, we provide in this paper evidence that outside directors' option grants have also been favorably timed to an extent that cannot be fully explained by sheer luck. Examining events in which public firms granted options to outside directors during 1996-2005, we find that 9% were "lucky grant events" falling on days with a stock price equal to a monthly low. We estimate that about 800 lucky grant events owed their status to opportunistic timing, and that about 460 firms and 1400 outside directors were associated with grant events produced by such timing. There is evidence that the opportunistic timing of director grant events has been to a substantial extent the product of backdating and not merely spring-loading based on private information. We find that directors' luck has been correlated with executives' luck. Furthermore, grant events were more likely to be lucky when the firm had more entrenching provisions protecting insiders from the risk of removal, as well as when the board did not have a majority of independent directors.
Keywords: No keywords provided
JEL Codes: D23; G32; G38; J33; J44; K22; M14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| governance structures (G38) | opportunistic timing of outside directors' option grants (G34) |
| lack of independent directors (G34) | opportunistic timing of outside directors' option grants (G34) |
| presence of entrenching provisions (H13) | opportunistic timing of outside directors' option grants (G34) |
| opportunistic timing of outside directors' option grants (G34) | incidence of lucky grants (H27) |
| timing of grants to directors (G34) | timing of grants to executives (M52) |
| absence of independent directors and high entrenchment levels (G34) | opportunistic timing of director grants (G34) |
| opportunistic timing (C41) | agency problems (G34) |