dating sites in chicago area - Consequences of options backdating

That, of course, is what is meant by abusive "backdating" in today's parlance.

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Consequences of options backdating

The revelation that scores of firms engaged in the illegal manipulation of stock options’ grant dates (i.e. The evidence indicates that the consequences stemming from management misconduct and misrepresentation are of first-order importance in this context as shareholders of firms accused of backdating experience large negative, statistically significant abnormal returns.

Furthermore, shareholders’ losses are directly related to firms’ likely culpability and the magnitude of the resulting restatements, despite the limited cash flow implications.

ESOs are usually granted at-the-money, i.e., the exercise price of the options is set to equal the market price of the underlying stock on the grant date.

Because the option value is higher if the exercise price is lower, executives prefer to be granted options when the stock price is at its lowest.

And, tellingly, the losses are attenuated when tainted management of less successful firms is more likely to be replaced and relatively many firms become takeover targets.

We thank Thomas Lys (the Editor) and an anonymous referee for helping us improve the paper.

In order to lock in a profit on day one of an options grant, some executives simply backdate (set the date to an earlier time than the actual grant date) the exercise price of the options to a date when the stock was trading at a lower level. In this article, we'll explore what options backdating is and what it means for companies and their investors. Most businesses or executives avoid options backdating; executives who receive stock options as part of their compensation, are given an exercise price that is equivalent to the closing stock price on the date the options grant is issued.

This means they must wait for the stock to appreciate before making any money.

The Wall Street Journal (see discussion of article below) pointed out a CEO option grant dated October 1998.

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