Executive Stock Options: Exercise Policy and Market Reaction

In this paper I investigate the exercise policy, and the market reaction to that, of the executive stock option holders in Finland. The empirical tests are conducted with aggregated firm level data from 34 firms and 41 stock option programs. I find some evidence of an inverse relation between the exercise intensity of the options holders and the future abnormal return of the company share price. This finding is supported by the view that information about future company prospect seems to be the only theoretical attribute that could delay the exercise of the options. Moreover, a high concentration of exercises in the beginning of the exercise window is predicted and the market is expected to react to deviations from this. The empirical findings however show that the market does not react homogenously to the information revealed by the late exercises.

Essays on Stock Market Reactions to New Information

A functioning stock market is an essential component of a competitive economy, since it provides a mechanism for allocating the economy’s capital stock. In an ideal situation, the stock market will steer capital in a manner that maximizes the total utility of the economy. As prices of traded stocks depend on and vary with information available to investors, it is apparent that information plays a crucial role in a functioning stock market. However, even though information indisputably matters, several issues regarding how stock markets process and react to new information still remain unanswered. The purpose of this thesis is to explore the link between new information and stock market reactions. The first essay utilizes new methodological tools in order to investigate the average reaction of investors to new financial statement information. The second essay explores the behavior of different types of investors when new financial statement information is disclosed to the market. The third essay looks into the interrelation between investor size, behavior and overconfidence. The fourth essay approaches the puzzle of negative skewness in stock returns from an altogether different angle than previous studies. The first essay presents evidence of the second derivatives of some financial statement signals containing more information than the first derivatives. Further, empirical evidence also indicates that some of the investigated signals proxy risk while others contain information priced with a delay. The second essay documents different categories of investors demonstrating systematical differences in their behavior when new financial statement information arrives to the market. In addition, a theoretical model building on differences in investor overconfidence is put forward in order to explain the observed behavior. The third essay shows that investor size describes investor behavior very well. This finding is predicted by the model proposed in the second essay, and hence strengthens the model. The behavioral differences between investors of different size furthermore have significant economic implications. Finally, the fourth essay finds strong evidence of management news disclosure practices causing negative skewness in stock returns.

Essays on Stock Options, Incentives, and Managerial Action

Executive compensation and managerial behavior have received an increasing amount of attention in the financial economics literature since the mid 1970s. The purpose of this thesis is to extend our understanding of managerial compensation, especially how stock option compensation is linked to the actions undertaken by the management. Furthermore, managerial compensation is continuously and heatedly debated in the media and an emerging consensus from this discussion seems to be that there still exists gaps in our knowledge of optimal contracting. In Finland, the first executive stock options were introduced in the 1980s and throughout the last 15 years it has become increasingly popular for Finnish listed firms to use this type of managerial compensation. The empirical work in the thesis is conducted using data from Finland, in contrast to most previous studies that predominantly use U.S. data. Using Finnish data provides insight of how market conditions affect compensation and managerial action and provides an opportunity to explore what parts of the U.S. evidence can be generalized to other markets. The thesis consists of four essays. The first essay investigates the exercise policy of the executive stock option holders in Finland. In summary, Essay 1 contributes to our understanding of the exercise policies by examining both the determinants of the exercise decision and the markets reaction to the actual exercises. The second essay analyzes the factors driving stock option grants using data for Finnish publicly listed firms. Several agency theory based variables are found to have have explanatory power on the likelihood of a stock option grant. Essay 2 also contributes to our understanding of behavioral factors, such as prior stock return, as determinants of stock option compensation. The third essay investigates the tax and stock option motives for share repurchases and dividend distributions. We document strong support for the tax motive for share repurchases. Furthermore, we also analyze the dividend distribution decision in companies with stock options and find a significant difference between companies with and without dividend protected options. We thus document that the cutting of dividends found in previous U.S. studies can be avoided by dividend protection. In the fourth essay we approach the puzzle of negative skewness in stock returns from an altogether different angle than in previous studies. We suggest that negative skewness in stock returns is generated by management disclosure practices and find proof for this. More specifically, we find that negative skewness in daily returns is induced by returns for days when non-scheduled firm specific news is disclosed.

New Evidence on the Properties of the Financial Statement Information Pricing Process

This study contributes to our knowledge of how information contained in financial statements is interpreted and priced by the stock market in two aspects. First, the empirical findings indicate that investors interpret some of the information contained in new financial statements in the context of the information of prior financial statements. Second, two central hypotheses offered in earlier literature to explain the significant connection between publicly available financial statement information and future abnormal returns, that the signals proxy for risk and that the information is priced with a delay, are evaluated utilizing a new methodology. It is found that the mentioned significant connection for some financial statement signals can be explained by that the signals proxy for risk and for other financial statement signals by that the information contained in the signals is priced with a delay.

How Do Different Types of Investors React to New Financial Statement Information?

The study contributes to our understanding of the forces that drive the stock market by investigating how different types of investors react to new financial statement information. Using the extremely comprehensive official register of share holdings in Finland, we find that the majority of investors are more probable to sell (buy) stocks in a company after a positive (negative) earnings surprise, and show a bias towards buying after the disclosure of new financial statement information. Large investors, on the other hand, show behavior opposite to that of the majority of investors in the market. Further, foreign investors show behavior similar to that of domestic investors. We suggest investor overconfidence and asymmetric information as possible explanations for the documented behavior.

Kirurgisen operaation teatteri : Teatterillinen kuva ja ihmismuodon esitettävyys avantgardistisen väkivallan näkökulmasta

Dissertation considers the birth of modernist and avant-gardist authorship as a reaction against mass society and massculture. Radical avant-gardism is studied as figurative violence done against the human form. The main argument claims avant-gardist authorship to be an act of masculine autogenesis. This act demands human form to be worked to an elementary state of disarticulateness, then to be reformed to the model of the artist's own psychophysical and idiosyncratic vision and experience. This work is connected to concrete mass, mass of pigment, charcoal, film, or flesh. This mass of the figure is worked to create a likeness in the nervous system of the spectator. The act of violence against the human figure is intended to shock the spectator. This shock is also a state of emotional and perceptional massification. I use theatrical image as heuristic tool and performance analysis, connecting figure and spectator into a larger image, which is constituted by relationships of mimesis, where figure presents the likeness of the spectator and spectator the likeness of the figure. Likeness is considered as both gestural - social mimetic - and sensuous - kinesthetically mimetic. Through this kind of construction one can describe and contextualize the process of violent autogenesis using particular images as case studies. Avant-gardist author is the author of theatrical image, not particular figure, and through act of massification the nervous system of the spectator is also part of this image. This is the most radical form and ideology of avant-gardist and modernist authorship or imagerial will to power. I construct a model of gestural-mimic performer to explicate the nature of violence done for human form in specific works, in Mann's novella Death in Venice, in Schiele's and Artaud's selfportaits, in Francis Bacon's paintings, in Beckett's shortplat NOT I, in Orlan's chirurgical performance Operation Omnipresense, in Cindy Sherman's Film/Stills, in Diamanda Galás's recording Vena Cava and in Hitchcock's Psycho. Masspsychology constructed a phobic picture of human form's plasticity and capability to be constituted by influencies coming both inside and outside - childhood, atavistic organic memories, urban field of nervous impulses, unconsciousness, capitalist (image)market and democratic masspolitics. Violence is then antimimetic and antitheatrical, a paradoxical situation, considering that massmedias and massaudiences created an enormous fascination about possibilities of theatrical and hypnotic influence in artistic elites. The problem was how to use theatrical image without coming as author under influence. In this work one possible answer is provided: by destructing the gestural-mimetic performer, by eliminating representations of mimic body techniques from the performer of human (a painted figure, a photographed figure, a filmed figure or an acted figure, audiovisual or vocal) figure. This work I call the chirurgical operation, which also indicates co-option with medical portraitures or medico-cultural diagnoses of human form. Destruction of the autonomy of the performer was a parallel process to constructing the new mass media audience as passive, plastic, feminine. The process created an image of a new kind of autotelic masculine author-hero, freed from human form in its bourgeois, aristocratic, classical and popular versions.

The Impact of Emissions Trading on the Price of Electricity in Nord Pool : Market Power and Price Determination in the Nordic Electricity Market

The objective of this thesis is to find out how dominant firms in a liberalised electricity market will react when they face an increase in the level of costs due to emissions trading, and how this will effect the price of electricity. The Nordic electricity market is chosen as the setting in which to examine the question, since recent studies on the subject suggest that interaction between electricity markets and emissions trading is very much dependent on conditions specific to each market area. There is reason to believe that imperfect competition prevails in the Nordic market, thus the issue is approached through the theory of oligopolistic competition. The generation capacity available at the market, marginal cost of electricity production and seasonal levels of demand form the data based on which the dominant firms are modelled using the Cournot model of competition. The calculations are made for two levels of demand, high and low, and with several values of demand elasticity. The producers are first modelled under no carbon costs and then by adding the cost of carbon dioxide at 20€/t to those technologies subject to carbon regulation. In all cases the situation under perfect competition is determined as a comparison point for the results of the Cournot game. The results imply that the potential for market power does exist on the Nordic market, but the possibility for exercising market power depends on the demand level. In season of high demand the dominant firms may raise the price significantly above competitive levels, and the situation is aggravated when the cost of carbon dioixide is accounted for. Under low demand leves there is no difference between perfect and imperfect competition. The results are highly dependent on the price elasticity of demand.

Informational efficiency of the European Union emission allowance market

This thesis studies the informational efficiency of the European Union emission allowance (EUA) market. In an efficient market, the market price is unpredictable and profits above average are impossible in the long run. The main research problem is does the EUA price follow a random walk. The method is an econometric analysis of the price series, which includes an autocorrelation coefficient test and a variance ratio test. The results reveal that the price series is autocorrelated and therefore a nonrandom walk. In order to find out the extent of predictability, the price series is modelled with an autoregressive model. The conclusion is that the EUA price is autocorrelated only to a small degree and that the predictability cannot be used to make extra profits. The EUA market is therefore considered informationally efficient, although the price series does not fulfill the requirements of a random walk. A market review supports the conclusion, but it is clear that the maturing of the market is still in process.

Synthesis, Reactivity and Biological Activity of 17β-HSD1 Inhibitors Based on a Thieno[2,3-d]pryrimidin-4(3H)-one Core

Breast cancer is the most common cancer in women in Western countries. In the early stages of development most breast cancers are hormone-dependent, and estrogens, especially estradiol, have a pivotal role in their development and progression. One approach to the treatment of hormone-dependent breast cancers is to block the formation of the active estrogens by inhibiting the action of the steroid metabolising enzymes. 17beta-Hydroxysteroid dehydrogenase type 1 (17beta-HSD1) is a key enzyme in the biosynthesis of estradiol, the most potent female sex hormone. The 17beta-HSD1 enzyme catalyses the final step and converts estrone into the biologically active estradiol. Blocking 17beta-HSD1 activity with a specific enzyme inhibitor could provide a means to reduce circulating and tumour estradiol levels and thus promote tumour regression. In recent years 17beta-HSD1 has been recognised as an important drug target. Some inhibitors of 17beta-HSD1 have been reported, however, there are no inhibitors on the market nor have clinical trials been announced. The majority of known 17beta-HSD1 inhibitors are based on steroidal structures, while relatively little has been reported on non-steroidal inhibitors. As compared with 17beta-HSD1 inhibitors based on steroidal structures, non-steroidal compounds could have advantages of synthetic accessibility, drug-likeness, selectivity and non-estrogenicity. This study describes the synthesis of large group of novel 17beta-HSD1 inhibitors based on a non-steroidal thieno[2,3-d]pyrimidin-4(3H)-one core. An efficient synthesis route was developed for the lead compound and subsequently employed in the synthesis of thieno[2,3-d]pyrimidin-4(3H)-one based molecule library. The biological activities and binding of these inhibitors to 17beta-HSD1 and, finally, the quantitative structure activity relationship (QSAR) model are also reported. In this study, several potent and selective 17beta-HSD1 inhibitors without estrogenic activity were identified. This establishment of a novel class of inhibitors is a progressive achievement in 17beta-HSD1 inhibitor development. Furthermore, the 3D-QSAR model, constructed on the basis of this study, offers a powerful tool for future 17beta-HSD1 inhibitor development. As part of the fundamental science underpinning this research, the chemical reactivity of fused (di)cycloalkeno thieno[2,3-d]pyrimidin-4(3H)-ones with electrophilic reagents, i.e. Vilsmeier reagent and dimethylformamide dimethylacetal, was investigated. These findings resulted in a revision of the reaction mechanism of Vilsmeier haloformylation and further contributed to understanding the chemical reactivity of this compound class. This study revealed that the reactivity is dependent upon a stereoelectronic effect arising from different ring conformations.

Ionic Liquids and Microwaves in Promotion of Organic Synthesis : Friedel-Crafts reaction, deuterolabelling and O-Demethylation

The use of ionic liquids in chemical research has gained considerable interest and activity in recent years. Due to their unique and varied physicochemical properties, in comparison to molecular solvents, the potential applications for ionic liquids are enormous. The use of microwave irradiation, as a powerful dielectric heating technique, in synthetic organic chemistry has been known since 1986. Since then, it has gained significant recognition for its research and application in both academia and industry. The use of either ionic liquids or microwave irradiation in synthetic organic chemistry has been known to afford improved, alternative or complimentary selectivities, in comparison to traditional processes. In this study, the use of ionic liquids as solvents, co-solvents and catalytic media was explored in Friedel-Crafts, deuterolabelling and O-demethylation reactions. Alternative methods for the production of a variety of aromatic ketones using the Friedel-Crafts acylation methodology were investigated using ionic liquid catalyst or ionic liquid acidic additive systems. The disclosed methods, i.e. metal bistriflamides and chloroindate ionic liquids systems, possessed good catalytic activity in the synthesis of typical benzophenones. These catalytic systems were also recyclable. Microwave irradiation was found to be useful in the synthesis of various polyhydroxydeoxybenzoins and arylpropanones as synthetic precursors to naturally occurring or potentially bioactive compounds. Under optimized condition, the reaction occurred in only four minutes using systems such as [bmim][NTf2]/HNTf2 and [bmim][BF4]/BF3·OEt2. Naturally occurring polyphenols, such as isoflavones, can possess various types of biological or pharmacological activity. In particular, some are noted for their beneficial effects on human health. Isotopically labelled analogues of polyphenols are valuable as analytical standards in the quantification of these compounds from biological matrices. A new strategy for deuterolabelling of polyphenols was developed using ionic liquids as co-solvents and 35% DCl/D2O, as a cheap deuterium source, under microwave irradiation. Under these conditions, perdeuterated compounds were achieved in short reaction times, in high isotopic purity and in excellent yields. An O-demethylation reaction was developed, using an ionic liquid reaction medium with BBr3 for the deprotection of a variety methyl protected polyphenolic compounds, such as isoflavons and lignans. This deprotection procedure was found to be very practical as the reaction occurred under mild reaction conditions and in short reaction times. The isolation and purification steps were particularly straightforward and high yielding, in comparison to traditional methods.