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The two sides of CEO option grants at the IPO

Chahine, Salim and Goergen, Marc 2011. The two sides of CEO option grants at the IPO. Journal of Corporate Finance 17 (4) , pp. 1116-1131. 10.1016/j.jcorpfin.2011.04.005

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Abstract

This paper examines the impact of CEO IPO option grants on IPO underpricing. Contrary to Lowry and Murphy (2007) who do not find a relationship between the two, this paper finds such a relationship when board independence, the power of the CEO and venture capitalists (VCs) are taken into account. The results are threefold. First, powerful CEOs are able to reap substantial gains from IPO options, to the detriment of the shareholders. Second, young, powerful VCs use IPO option grants to bribe the CEO to agree to an early IPO which will leave more of the existing shareholders' money on the table. Finally, IPO options only work as a value-enhancing incentive in the presence of strong boards.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce
H Social Sciences > HG Finance
Uncontrolled Keywords: Stock options ; Board independence ; Venture capital involvement ; CEO power ; Initial public offerings ; Underpricing ; Conflicts of interests ; Corporate governance
Publisher: Elsevier
ISSN: 0929-1199
Last Modified: 04 Jun 2017 03:29
URI: http://orca-mwe.cf.ac.uk/id/eprint/22011

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