Conversely, variables one would expect to be related to the magnitude of direct out-of-pocket expenses, namely the number of past grants and/or their value, are not significantly related or are positively related to shareholders’ wealth effects, inconsistent with the direct cost hypothesis.
Overall, the evidence is consistent with the hypothesis that the loss of investors’ confidence in the firm’s management is a first-order determinant of the economic consequences resulting from the option backdating scandal.
This paper provides an overview of (1) the basics of employee stock option backdating; (2) why firms and individuals may engage in backdating; (3) the difficulties in examining option backdating in Canada as well as a Canadian case study of option backdating; (4) implications of backdating; and (5) suggestions for curbing the potential to backdate in Canada. Murphy, ―Executive Compensation‖ in Orley Ashenfelter and David Card (eds.), Handbook of Labor Economics, Vol.
Murphy, ―The Trouble with Stock Options‖ (2003) vol. 3 Journal of Economic Perspectives 49-70; The Conference Board, The 2006 Top Executive Compensation Report (New York: The Conference Board, 2006).
Evidence from Stock Price Reversals Around Executive Option Grants‖, Working Paper, University of Michigan, Version: January 2005.
Seyhun, ―Effect of Sarbanes-Oxley Act on the Influence of Executive Compensation‖ Working Paper, University of Michigan, Version: March 2006M. Mawani, ―The Impact of Financial and Tax Reporting Incentives on Option Grants to Canadian CEOs‖ (2000) vol. Lie, ―On the Timing of CEO Stock Option Awards‖ (2005) vol. Jarrell, ―The Impact of the Options Backdating Scandal on Shareholders‖ (Forthcoming) Journal of Accounting and Economics. Johnson, ―Stock and Stock Option Compensation: A Bad Idea‖ (2003) vol. Backdating employment dates is fraud on multiple levels, including possibly insurance (if offered), financial reporting and accounting, and state/federal employment reporting.