The role of executive stock options in REIT repurchases

This paper examines the relationship between managerial stock option holdings and the decision to announce a repurchase of the firm's common stock. Managerial stock option holdings should reinforce the traditional undervaluation, free cash flow, and capital structure motives for repurchases by helping to align the objectives of management and shareholders. Data from the Real Estate Investment Trust (REIT) industry during the peak period of repurchase activity (1997-1999) are used to estimate a logit model of the decision to announce a repurchase program. After controlling for the standard motivations discussed in the literature, the findings reveal that managerial option holdings are positively related to the likelihood of a repurchase announcement.