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Executive Loans

Published online by Cambridge University Press:  06 April 2009

Kathleen M. Kahle and
Kuldeep Shastri
Kathleen M. Kahle
Affiliation:
kkahle@eller.arizona.edu, University of Arizona, Eller College of Business, PO Box 210108, Tucson, AZ 85721
Kuldeep Shastri
Affiliation:
kuldeep@katz.pitt.edu, University of Pittsburgh, Katz Graduate School of Business, 368B Mervis Hall, Pittsburgh, PA 15260
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Abstract

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This paper analyzes the characteristics and impact of loans made to executives for stock purchase, option exercise, and relocation. We find that loans made to assist executives in purchasing stock or exercising options are larger and have higher interest rates than relocation loans. All types of loans, however, are issued at below-market interest rates, on average. We also find that while stock purchase loans are given to managers with low existing ownership, option exercise loans are given to managers with high existing ownership and high cash compensation. Finally, our results indicate that executive stock ownership increases following stock purchase and option exercise loans. For managers as a whole, a loan that enables a manager to buy 100 shares of stock results in only an eight share increase in ownership. However, the relation between ownership changes and stock purchase loans is much stronger for low ownership managers.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 39 , Issue 4 , December 2004, pp. 791 - 811
Copyright
Copyright © School of Business Administration, University of Washington 2004

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