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In a study of top U.S. executives between 1996 and 2006, we examined the impact of underwater stock options on voluntary turnover. Financial and economic logic suggests that underwater options may carry a positive valuation based on Black–Scholes (BS) pricing, even when the current market price is below the exercise price. However, a variety of psychological and behavioral theories suggest that underwater option portfolios may motivate voluntary turnover to a greater extent than what can be captured by Black–Scholes valuation. Findings supported these perspectives, as underwater options were associated with voluntary executive turnover, after controlling for the BS value of the options and other factors. Moreover, we found evidence that voluntary turnover dynamics differed substantially between CEOs and non-CEOs. [ABSTRACT FROM AUTHOR]