An examination of executive stock option repricing

Comparing a sample of firms that reprice executive stock options in 1998 to a control sample of firms with out-of-the-money options in 1998 that do not reprice, we find that the likelihood of repricing increases for young, high technology firms and firms whose options are more out-of-the-money, Further, we find that firms reprice in response to poor firm-specific, not pool industry, performance. However, we find no evidence that repricing is related to agency problems. Our results an consistent with firms repricing options to restore incentive effects and to deter managers in competitive labor markets from going to work for other firms. (C) 2001 Elsevier Science S.A. All rights reserved.