Stock Option Grant Vesting Terms: Economic and Financial Reporting Determinants

We investigate the economic determinants of CEO stock option grant vesting periods and provide evidence that firms use vesting periods strategically. We examine vesting schedules for a large sample of firms using information extracted from Form 4 insider trading filings. Contrary to a commonly held belief that firms use boilerplate vesting schedules, we document significant variation in the vesting periods of option grants. We test for several economic motivations for vesting terms, including the desire to extend the executive