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In the 90 days after the option grant, however, the average stock generated an abnormal positive return of 1.1%. The V pattern turns out to get stronger at companies where CEOs have both more incentive and more opportunity to manipulate share prices.Overall, the researchers estimate, the “round trip” from the temporary dip through the rebound produced an abnormal positive return of about 2%. The V was deeper, for example, at companies that awarded above-average numbers of stock options and where top executives had more to gain.One key reform: Companies began scheduling their upcoming option grants well in advance and on immovable dates.On top of that, regulators ordered all companies to disclose all of their option grants within two days of when they occurred.It’s not quite as risk-free as the original scheme, but it comes close. Indeed, the researchers identify several techniques by which companies appear to nudge share prices in the directions they want.Using conservative assumptions, Daines and his colleagues estimate that the new maneuvering provides an average extra payout of just over 0,000 per CEO.Sometimes, of course, a company can do both things in the same cycle.
The same pattern showed up with company-issued “guidance” about upcoming earnings and with accounting decisions that effectively shift profits from one quarter to the next.It was especially deep, however, at companies that were also hard to value and where company announcements and “guidance” could have a big impact on investor expectations.Think here of a fast-growing technology company, where it’s difficult to predict the exact pace of future growth and where the statements of top management can significantly influence investor expectations.“I was surprised, because it sounded too cynical at first,” says Daines, who teamed up with Grant R. The unusual stock patterns happen so often, and they exactly fit with the self-interest of the CEOs and senior executives.Either the CEOs are incredibly lucky or they are manipulating stock prices.” Daines and his colleagues found a remarkable telltale V-shaped pattern in stock prices when they analyzed 1,500 companies that granted options.
In “bullet-dodging,” a company temporarily depresses its stock price by releasing negative information before the option-grant date.