Stocking Up: Executive Optimism, Option Exercise, and Share Retention

78 Pages Posted: 18 Feb 2009 Last revised: 8 Dec 2015

See all articles by Rik Sen

Rik Sen

University of New South Wales (UNSW)

Robert Tumarkin

UNSW Australia Business School, School of Banking and Finance; Financial Research Network (FIRN)

Date Written: July 30, 2015

Abstract

We show that an executive is optimistic about her company’s prospects if and only if she retains some of the shares received whenever she exercises company stock options. Empirically, an indicator of optimism based on this idea matches the expected relations between optimism and corporate decision-making better than commonly used indicators based on the timing of option exercise. This makes sense, as our model of an executive’s optimal option exercise and portfolio choice demonstrates that the timing of option exercise depends just as much on stock and other executive characteristics as it does on optimism.

Keywords: Optimism, Executive stock option, Exercise Policy, Optimism measures, Corporate financial policies

JEL Classification: G11, G30, G32, G34

Suggested Citation

Sen, Rik and Tumarkin, Robert, Stocking Up: Executive Optimism, Option Exercise, and Share Retention (July 30, 2015). Journal of Financial Economics (JFE), Vol. 118, No. 2, 2015, Available at SSRN: https://ssrn.com/abstract=1343980 or http://dx.doi.org/10.2139/ssrn.1343980

Rik Sen

University of New South Wales (UNSW) ( email )

Kensington
High St
Sydney, NSW 2052
Australia

Robert Tumarkin (Contact Author)

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia
+61 02 9385 6730 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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