How to Spot an Overconfident CEO
Investors can learn something from how executives treat their stock options.
How to Spot an Overconfident CEOHow stock-options awards prompt executives to take on more debt and risk
The grants cause greater risk-taking, but not to the extent that one popular narrative suggests
A 10% increase in the value of new options granted leads to a 2%–6% increase in the annualized volatility of daily stock returns.
Kelly Shue and Richard Townsend, “Swinging for the Fences: Executive Reactions to Quasi-Random Option Grants,” Working paper, February 2014.
Investors can learn something from how executives treat their stock options.
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