The Returns to Spring-Loading

46 Pages Posted: 9 Mar 2008 Last revised: 21 Apr 2009

See all articles by Rik Sen

Rik Sen

University of New South Wales (UNSW)

Date Written: March 2009


Abnormal returns following public disclosures of unscheduled grants to CEOs are positive and highly significant in the post Sarbanes Oxley period. This implies widespread spring-loading (awarding options ahead of good news releases). Between September 2002 and March 2006, a trading strategy that buys stocks after news of unscheduled option grants to CEOs become public earns 1.1% monthly abnormal returns, implying the market did not realize that grants were spring-loaded. After March 2006, when it was no longer possible to spring-load grants in a clandestine fashion, this practice stopped. This suggests spring-loading was a means of providing secret compensation rather than prudent pay practice.

Keywords: Executive stock options, Executive compensation, Corporate Governance, Sarbanes Oxley Act, Backdating

JEL Classification: J33, M52, G34, G38, K42

Suggested Citation

Sen, Rik, The Returns to Spring-Loading (March 2009). EFA 2008 Athens Meetings Paper, Available at SSRN: or

Rik Sen (Contact Author)

University of New South Wales (UNSW) ( email )

High St
Sydney, NSW 2052

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