Does Option Repricing Retain Executives and Improve Future Performance?

We directly test the assertion that executive stock option repricing leads to increased management retention and/or improved future firm performance. Using a sample of 201 repricing events and a non-repricing control sample, we examine executive retention in the four years following repricing. We find that CEO retention is significantly greater for repricing firms relative to non-repricing firms for three years following the repricing date, and non-CEO executive retention is significantly greater for two years. We also find that, in the pre-repricing period, repricing firms exhibit significant positive industry-adjusted firm growth, stock, and operating performance. However, we find mixed results in the post-repricing period. We find that repricing firms exhibit significant negative industry-adjusted firm growth, and significant positive industry-adjusted stock and accounting performance