Executive Loans

This paper analyzes the characteristics and impact of loans made to executives for purposes of stock purchase, funding of options exercised and relocation. We find that loans made to assist executives in purchasing stock or exercising options tend to be larger and have higher interest rates than relocation loans. On the other hand, all loans are issued at below-market interest rates. We also find evidence that loans made for the purpose of purchasing stock or exercising options result in an increase in executive stock ownership. When looking at managers as a whole, a loan that enables a manger to buy 100 shares of stock results in an eight-share increase in ownership. However, the relation between ownership changes and stock purchase loans is one-to-one for low ownership managers