NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Lucky CEOs

Lucian A. Bebchuk, Yaniv Grinstein, Urs Peyer

NBER Working Paper No. 12771
Issued in December 2006
NBER Program(s):   CF   LE   LS

We study the relation between corporate governance and opportunistic timing of CEO option grants via backdating or otherwise. Our methodology focuses on how grant date prices rank within the price distribution of the grant month. During 1996-2005, about 12% of firms provided one or more lucky grant -- defined as grants given at the lowest price of the month -- due to opportunistic timing. Lucky grants were more likely when the board did not have a majority of independent directors and/or the CEO had longer tenure -- factors associated with increased influence of the CEO on pay-setting. We find no evidence that gains from manipulated grants served as a substitute for compensation paid through other sources; total reported compensation from such sources was higher in firms providing lucky grants. Finally, opportunistic timing has been widespread throughout the economy, with a significant presence in each of the economy's twelve (Fama-French) industries.

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Document Object Identifier (DOI): 10.3386/w12771

Published: Bebchuk, Lucian, Yaniv Grinstein, and Urs Peyer. “Lucky CEOs and Lucky Directors." Journal of Finance 65, 6 (2010): 2363-2401.

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