Information distribution within firms: evidence from stock option exercises☆

Abstract

We examine the stock option exercise decisions of over 50,000 employees at seven corporations to provide evidence on the distribution of price-relevant non-public information among employees. When option exercise (adjusted for other factors affecting exercise) is low, stock returns in the coming 6 months are 10% higher than when option exercise is high. The exercise decisions of relatively junior employees contain at least as much price-relevant information as the exercise decisions of more senior employees.