Title: Option repricing, management turnover and restatement

Authors: Hsiu-Ying Lee; Woody M. Liao; Yi-Mien Lin; Chao-Kai Hsu

Addresses: Department of Accounting, Tunghai University, Taichung City 40704, Taiwan ' A. Gary Anderson Graduate School of Management, University of California, Riverside, CA 92521, USA ' Department of Accounting, National Chung Hsing University, Taichung 402, Taiwan ' Ernst & Young Global Limited, Keelung Rd., Taipei 11012, Taiwan

Abstract: This study examines the association between financial restatements and executive option repricings and tests whether stock option repricing reduces management turnover in restating firms. We found a positive association between financial restatement and management turnover and those financial restating firms are likely to implement option repricing when the manager's equity compensation is large and the sensitivity of the option value is high. However, we found no evidence that executive option repricing reduces management turnover in financial restating firms. Our analysis showed that, although financial restating firms may implement option repricing to restore the option incentive effect, valuable managers often leave their jobs because of poor future prospects in restating firms. Our results, therefore, suggest that repricing of executive stock options is not an effective management retention strategy for financial restating firms but managers' equity compensation and option value incentives are important determinants of option repricing.

Keywords: management turnover; executive stock options; option repricing; financial restatements; management retention strategy; equity compensation; option value incentives.

DOI: 10.1504/IJEBR.2013.054258

International Journal of Economics and Business Research, 2013 Vol.5 No.4, pp.453 - 475

Published online: 30 Dec 2013 *

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