Executive Stock Options And IPO Underpricing

Topics:
IPO
Tags:
Finance,
Financial Planning,
Financial Services,
Investment,
IPO,
Stock,
Stock Option
Source:
University of Southern California

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Overview: In about one-third of US IPOs between 1996 and 2000, executives received stock options with an exercise price set equal to the IPO (Initial Public Offerings) offer price (rather than a price determined by the market). Among firms with such "IPO options", 58 percent of top executives receive a net gain from underpricing, meaning the gain from IPO options exceeds the loss from the dilution of their pre-IPO shareholdings. If executives can influence the IPO offer price, a positive relation was expected between these IPO options and underpricing. Alternatively, executives may be able to influence the timing and terms of their stock options, and this would similarly predict a positive relation between IPO options and underpricing.

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Format: PDF | Size: 674KB | Date: Jul 2006 | Pages: 42

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