Stock price decreases prior to executive stock option grants

This study examines abnormal stock price changes prior to executive stock o ption grants. Executives have the incentive and opportunity to manage the t iming of their communications of inside information to the market during th e period just prior to the date of their stock-option grant so as to reduce the exercise price of their options. Executives benefit from temporary sto ck price decreases before the grant date and by stock price increases after the grant date. Executive stock option grants create a unique opportunity for insiders to profit by manipulating the timing of information flowing to the market without engaging in insider trading. Using data on 783 stock-op tion grants to chief executive officers, we find a statistically significan t abnormal decrease in stock prices during the 10-day period immediately pr eceding the grant date. (C) 2001 Elsevier Science B.V. All rights reserved.