Stock Price Decreases Prior to Executive Stock-Option Grants

This study examines abnormal stock price changes prior to executive stock option grants. We suggest that executives may have the incentive to manipulate information released to the market during the period just prior to their stock-option grant dates so as to reduce the exercise price of their options. The manipulation could be in the form of delaying the release of good news, information that will positively influence stock prices, ensuring that bad news is released prior to the grant date, or releasing of false information. Executive stock option grants create the unique opportunity for insiders to profit from information-based price manipulation without engaging in insider trading. Using data on 783 stock-option grants to chief executive officers, we find a statistically significant abnormal decrease in stock prices during the 10-day period immediately preceeding the grant date