What is Six and One? An Analysis of Re-Priced Stock Options

29 Pages Posted: 19 Sep 2004

See all articles by Conrad S. Ciccotello

Conrad S. Ciccotello

Daniels College of Business, University of Denver

C. Terry Grant

California State University, San Marcos - College of Business Administration

Mark Wilder

University of Mississippi - Patterson School of Accountancy

Date Written: September 15, 2004

Abstract

This paper examines the incentives surrounding re-priced options and the favorable timing of option awards. To avoid expense recognition of re-priced options, some firms set a replacement strike price six months plus one day after the cancellation of existing options. The six-plus-one strategy makes the grant date completely predictable. Abnormal stock returns are negative (positive) during the six-month period prior to the replacement date for grants that include (exclude) officers or directors. Positive abnormal returns occur after the replacement date for firms covered by a smaller number of analysts and for grants that exclude officers and directors. Earnings surprises and volatility reflect efforts to produce the favorable abnormal return pattern.

Keywords: stock options, repricing, earnings management

JEL Classification: M52

Suggested Citation

Ciccotello, Conrad S. and Grant, C. Terry and Wilder, Mark, What is Six and One? An Analysis of Re-Priced Stock Options (September 15, 2004). Available at SSRN: https://ssrn.com/abstract=591745 or http://dx.doi.org/10.2139/ssrn.591745

Conrad S. Ciccotello (Contact Author)

Daniels College of Business, University of Denver ( email )

2201 S. Gaylord St
Denver, CO 80208-2685
United States

C. Terry Grant

California State University, San Marcos - College of Business Administration ( email )

College of Business Administration
333 S. Twin Oaks Valley Rd.
San Marcos, CA 92096
United States

Mark Wilder

University of Mississippi - Patterson School of Accountancy ( email )

730 East Beach Blvd.
Long Beach, MS 39560
United States

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