Share Repurchases and Stock Option Grants

This paper shows evidence for the hypothesis that the CEO opportunistically times share repurchases around her grants of at-the-money stock options. We find that firms decrease their repurchase activity in the quarter before the stock option grant to the CEO. When the option grant constitutes a larger fraction of the CEO's salary, firms more strongly change their repurchase activity. An alternative hypothesis is that CEOs time stock option grants rather than share repurchases. This hypothesis gives rise to the expectation that the effect is mostly present in unscheduled options. However, we find that the effect is present for both scheduled and unscheduled grants which is not consistent with this alternative hypothesis