Finance and Financial Management Commons^™

Repricing And Executive Turnover, Narayanan Subramanian, Atreya Chakraborty, Shahbaz Sheikh

Atreya Chakraborty

We examine whether the threat of executive turnover faced by a firm affects its decision to reprice stock options held by its executives. We estimate a model of voluntary turnover among top executives and show that the predicted turnover from this model is positively related to the probability of repricing. The relationship is robust to the inclusion of several known determinants of repricing. Our results are consistent with a model in which a tight labor market makes executives hard to replace, forcing firms to reprice stock options when they go underwater.