CEO Stock Option Awards and Corporate Voluntary Disclosures

This study investigates whether CEOs manage investors’ expectations downward to scheduled stock option awards. Because executive stock options are typically awarded with a fixed exercise price equal to the stock price on the award date, we conjecture that CEOs with scheduled awards opportunistically manage the timing of their voluntary disclosures. Particularly, we predict that they delay announcements of good news until after their scheduled awards and accelerate the disclosure of bad news to precede the awards. This disclosure strategy ensures that decreases (increases) in the firm’s stock price occur before (after) the award. Using data from annual proxy statements, we identify a sample of 2,039 CEO stock option awards made between 1992-1996 by 572 firms with fixed award schedules. We provide evidence based on summary measures (changes in share prices and analyst earnings forecasts) and actual corporate voluntary disclosures that are consistent with our conjectures.