- Is backdating vicious? - An investigation on the rationale of backdating CEO stock options
- Number of pages
- Amsterdam: Faculteit Economie en Bedrijfskunde
- Document type
- Working paper
- Faculty of Economics and Business (FEB)
- Amsterdam Business School Research Institute (ABS-RI)
The widespread practice of backdating executive stock options has drawn strong criticism of the public and also serious attention of the regulators. Other than pure luck and insider manipulation, I conjecture some backdating is rational. By using a sample of 126 US companies under investigations related to backdating, I find them larger, younger, having lower cash holding and higher stock volatility. In addition, there is little evidence for managerial entrenchment and under performance. Lastly, I build up a simple dynamic game of imperfect information, showing that higher performance indeed increases the backdating propensity, which distinguishes backdating from repricing mechanism.
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