Option backdating and board interlocks online dating belgie
This finding also undermines the theory that outside directors will serve as a watchdog on improper management practices.
If correct, it means the watchdog is the source of what may –backdating is not illegal in and of itself – be an improper practice.
We examine the role of board connections in explaining how the controversial practice of backdating employee stock options spread to a large number of firms across a wide range of industries.
The increase in the likelihood that a firm begins to backdate stock options that can be explained by having a board member who is interlocked to a previously identified backdating firm is approximately one-third of the unconditional probability of backdating in our sample.
The study should clearly cause everyone to rethink the issues surrounding option backdating.
This suggestion is also contrary to the current wisdom that the practice was management driven – at least that is the inference from the two cases the SEC and DOJ have filed.
This conclusion would clearly make the practice much more wide-spread than anyone had initially thought.
The study also suggests that the practice may have proliferated as a result of directors who held positions on more than one board.
We use a large database on ESO exercises to document characteristics of exercise behavior and calibrate a utility-based model for measuring how differences in exercise behavior are manifested in option values and incentives.
Our analysis provides guidance to both academics and practitioners about how differences in exercise behavior and model choice affect measures of ESO values and incentives, and underscores the importance of gaining a thorough understanding of the underlying economic forces that affect the behavior of ESO holders Our findings also suggest that the documented asymmetry in the relationship between CEO pay and luck is explained by the firms desire to adjust pay for retention purposes and is not the result of rent-seeking behavior on the part of the CEO.
A new study by finance professors suggests that the backdating of stock options may be a much more wide-spread practice than once thought.