Reaction of bond markets to CEO option exercises

Reaction of bond markets to CEO option exercises

Despite the large literature about the effect of CEO option compensation on shareholder value, little is understood on how this option compensation affects bondholder welfare. In this paper, we investigate the bond price reaction toward CEO option exercises. We find a significant positive reaction o...

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Bibliographic Details
Main Authors: Swetha Balachandran, Rahul Bali, Teo, Amos Kuan Ping
Other Authors: Gao Huasheng
Format: Final Year Project
Language:English
Published: 2011
Subjects:
DRNTU::Business::Finance::Fixed income::Bonds
Online Access:http://hdl.handle.net/10356/43874
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Institution: Nanyang Technological University
Language: English
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Summary:Despite the large literature about the effect of CEO option compensation on shareholder value, little is understood on how this option compensation affects bondholder welfare. In this paper, we investigate the bond price reaction toward CEO option exercises. We find a significant positive reaction of bond price when the CEO exercises their stock option. The evidence is consistent with the view that stock option exercise decreases the CEO’s risk-taking incentives and thus is a positive event for bondholders.

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