EXECUTIVE STOCK OPTIONS PLANS AND ITS EFFECT ON SHORT-RUN CORPORATE PERFORMANCE

Abstract

This paper examines the effect of executive stock option plans on corporate performance. By using a standard event study methodology for Malaysian listed firms, the study findings reveal a negative share returns before announcement day and following with a positive effect as consistent result which reported in past studies. However, the announcement for executive stock option plans does not carry any surprise event to the Malaysia capital market. In short, the weak share price reaction before the event day confirmed that early information releases before official announcement could be rules out. There is also a possibly an opportunistic behavior among executive levels that used stock option plans as a tool for increasing theirpersonal wealth. Then, they would be selectively delayed bad news and released good news in order to lessen the share prices before official announcement and upward the share prices later. Furthermore, the insignificant effect in returns at the event day may perhaps due to the beneficial groups of stock options are all for internal staffs. Therefore, the market might anticipate that news of stock option plans do not produce good impact to the market. From this result, it also provides an idea that granting executive stock option plans carry less signaling impact to the market. Moreover, a loss in returns for short-run firm performance for beneficial groups could be explained as large fraction of stock options are an immediate cost to shareholders.