Discussion of Information Distribution within Firms: Evidence from Stock Option Exercises

Huddart and Lang (J. Accounting Econom. 34 (2003)) documents that higher level of employee option exercise during a particular month is associated with lower returns in subsequent months, suggesting employees exploit private information in their exercise decisions. While the paper extends the insider trading literature that has focused on top executives, a number of inconsistencies with prior studies remain unresolved. Moreover, the study does not establish a direct link to the private information employees supposedly exploit. Establishing such a link is warranted here in the light of the surprising finding that exercises by senior employees are no more informative than those by lower rank employees.