Showing papers by "David Yermack published in 2000"
TL;DR: This article investigated the impact of stock-based compensation on managerial ownership and found that when executives exercise options to acquire stock, nearly all of the shares are sold, while higher-ownership managers negate much of its impact by selling previously owned shares.
Abstract: We investigate the impact of stock-based compensation on managerial ownership. We find that equity compensation succeeds in increasing incentives of lowerownership managers, but higher-ownership managers negate much of its impact by selling previously owned shares. When executives exercise options to acquire stock, nearly all of the shares are sold. Our results illuminate dynamic aspects of managerial ownership arising from divergent goals of boards of directors, who use equity compensation for incentives, and managers, who respond by selling shares for diversification. The findings cast doubt on the frequent and important theoretical assumption that managers cannot hedge the risks of these awards. WE INVESTIGATE THE IMPACT OF STOCK-BASED COMPENSATION, including options and restricted stock, on the ownership of U.S. executives. Equity-based pay spread at explosive rates in the United States during the 1990s. Morgenson ~1998! reports that in 1997, the 200 largest U.S. companies had reserved more than 13 percent of their common shares for compensation awards to managers, up from less than seven percent eight years earlier. Institutional investors and shareholder activists have tolerated and even encouraged this diversion of equity to executives, believing that managerial ownership may reduce agency problems. Boards’ compensation committees routinely cite the goal of increasing managerial ownership as the rationale for equity-based pay. 1 Although boards state that they intend stock options and other awards to boost the ownership of managers, executives are not likely to have the same goal. Modern portfolio theory predicts that managers receiving additional stock in their firms should sell these shares or, equivalently, sell other shares
663 citations
TL;DR: In this article, the authors examine the practice of resetting the terms of previously-issued executive stock options and identify properties of reset options, develop a model for valuing resettable options, and characterize the firms that have reset options.
206 citations
TL;DR: In this article, benefits received by target company CEOs in completed mergers and acquisitions were studied, and it was found that CEOs receive lower financial gains from those transactions in which they become executives of the buyer, suggesting that tradeoffs exist between the financial and career-related benefits they extract.
Abstract: We study benefits received by target company CEOs in completed mergers and acquisitions. These executives obtain wealth increases with a median of $4 to $5 million and a mean of $8 to $11 million, roughly in line with the permanent income streams that they sacrifice. CEOs receive lower financial gains from those transactions in which they become executives of the buyer, suggesting that tradeoffs exist between the financial and career-related benefits they extract. Regression estimates suggest that target shareholders receive lower acquisition premia in transactions that involve extraordinary personal treatment of the CEO.
42 citations