Sunday, December 5, 2010
Lucky CEOs and Lucky Directors, by Lucian A. Bebchuk, Harvard University - Harvard Law School; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI); Yaniv Grinstein, Cornell University - Samuel Curtis Johnson Graduate School of Management; and Urs Peyer,
INSEAD - Finance, was recently posted on SSRN. Here is the abstract:
This paper integrates and further develops the analysis of two discussion papers we circulated earlier, “Lucky CEOs” and “Lucky Directors.” We study the relation between opportunistic timing of option grants and corporate governance, focusing on at-the-money “lucky” grants awarded at the lowest price of the grant month. We find that both CEO and independent directors received an abnormally high number of lucky grants, and that opportunistic timing of director grants was not merely a by-product of their coinciding with executive grants or of firms’ routinely timing all grants. Lucky grants to CEOs and directors are associated with higher CEO compensation from other sources, and are correlated with a lack of majority of independent directors on the board, no independent compensation committee with an outside blockholder, or a long-serving CEO. For any given firm, the odds of a lucky grant increased when the payoffs from luck were high and when a preceding grant was lucky.