The 'repricing' of executive stock options

We examine a sample of firms that reset the exercise prices on their execut ive options. These repricings follow a period of about one year of poor fir m-specific performance in which the average firm loses one-fourth of its va lue. No other offsetting changes to option terms or compensation are made, and many firms reprice more than once. Without repricing, a majority of the options would have been at-the-money within two years. We find that when f aced with circumstances in which repricing might be chosen, firms with grea ter agency problems, smaller size, and insider- dominated boards are more l ikely to reprice. (C) 2000 Elsevier Science S.A. All rights reserved. JEL c lassification: G30; G32; J33.