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Backdating And Director Incentives: Money Or Reputation?

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  • Kristina Minnick
  • Mengxin Zhao
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    Abstract

    Abstract We investigate how director incentives affect the occurrence of firms' backdating employee stock options. Directors with more wealth tied up in stock options may pursue activities that lead to personal gain, such as option backdating, which potentially increases the option recipient's compensation. We document a positive and significant association between director option compensation and the likelihood that firms backdate stock options. Our results question the effectiveness of director option compensation in aligning the interests with those of shareholders and help to explain the recent decline in the use of director option grants by many firms. Copyright (c) 2009 The Southern Finance Association and the Southwestern Finance Association.

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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1475-6803.2009.01257.x
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    Bibliographic Info

    Article provided by Southern Finance Association & Southwestern Finance Association in its journal Journal of Financial Research.

    Volume (Year): 32 (2009)
    Issue (Month): 4 ()
    Pages: 449-477

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    Handle: RePEc:bla:jfnres:v:32:y:2009:i:4:p:449-477

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    Web page: http://www.blackwellpublishing.com/journal.asp?ref=0270-2592
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    Web page: http://www.southwesternfinance.org/
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    Web: http://www.blackwellpublishing.com/subs.asp?ref=0270-2592

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    Cited by:
    1. Ertimur, Yonca & Ferri, Fabrizio & Maber, David A., 2012. "Reputation penalties for poor monitoring of executive pay: Evidence from option backdating," Journal of Financial Economics, Elsevier, vol. 104(1), pages 118-144.

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