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Executive Stock Option Exercise and Seasoned Equity Offerings

Brandon N. Cline and Xudong Fu
Financial Management
Vol. 39, No. 4 (WINTER 2010), pp. 1643-1670
Published by: Wiley on behalf of the Financial Management Association International
Stable URL: http://www.jstor.org/stable/40963523
Page Count: 28
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Executive Stock Option Exercise and Seasoned Equity Offerings
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Abstract

We examine executive stock option exercises around a sample of 1,268 seasoned equity offerings (SEOs) from 1996 to 2004 focusing on a subset of exercises we identify as potentially informed. Consistent with the theory that firms issue equity when stock is overvalued, we document a surge in informed exercise in the months surrounding the SEO. From six months prior to the announcement date to six months after issuance, an average 1.76% of the total market capitalization for issuing firms is exercised and sold. Interestingly, we find a positive association between informed option exercises and long-run performance. Overall, our collective evidence indicates that insiders are not particularly good at timing exercises around SEOs.

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