Market timing of executive stock option granting and exercising: Evidence from bursa Malaysia

Ibrahimy, A.I. and Ahmad, R. (2012) Market timing of executive stock option granting and exercising: Evidence from bursa Malaysia. In: International Conference on Business and Economic Research, 12-13 March 2012, Bandung, Indonesia.

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Abstract

Separation of ownership and control creates the necessity of corporate governance mechanisms, such as Executive Stock Option Scheme (ESOs), which reduce the conflicts of interests between managers and shareholders. In spite of the fact that shareholders exercise their option when it is in the money, this study attempts to explore the properties of option exercising behavior by executives to verify any differences of trading patterns in terms of ESO granting and exercising. In the presence of concentrated ownership coupled with poor corporate governance structure in Malaysia, executives might have control over management compensation plan to benefit them rather than maximizing wealth of the corporations. Using data on ESO granting and exercising from 201 non-financial companies, this paper aims to recognize the pattern of ESO exercises by Malaysian executives affecting firm performance. We found that Malaysian companies are granting their ESO when market is overvalued. We also found a significant positive relationship between ESO exercising and firm performance for both market and accounting based performance measures. Panel data analysis of fixed effect estimation revealed the fact that Malaysian executives exercise their option immediately after they are granted; suggesting intended behavior of adopting ESOs.

Item Type: Conference or Workshop Item (Paper)
Uncontrolled Keywords: Management Compensation, Executive Stock Option Scheme (ESOs), ESO Granting, ESO Exercising, Corporate Governance
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Business and Accountancy > Dept of Finance and Banking
Depositing User: Mr. Mohd Samsul Ismail
Date Deposited: 22 Aug 2015 06:12
Last Modified: 22 Aug 2015 06:12
URI: http://eprints.um.edu.my/id/eprint/13973

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