Backdating executive stock options--An ex ante valuation
AbstractWhen backdating executive stock options (ESOs), the exercise price is set in favor of the recipient executive. Relative to a non-backdated benchmark, we find an (ex ante) upper bound for the cost of backdating to shrink from 10% to about 3.7%, as a consequence of the regime change represented by the Sarbanes-Oxley act (SOX). We frame the backdating behavior as a (compound) exotic option, considering both simple and extended models of the underlying ESO--in the latter case we draw on the analytical ESO models of Sircar and Xiong (2007). Post-SOX, we use a Longstaff-Schwartz inspired least squares Monte Carlo approach.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 35 (2011)
Issue (Month): 10 (October)
Contact details of provider:
Web page: http://www.elsevier.com/locate/jedc
Backdating of executive stock options Exotic lookback options SOX;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yermack, David, 1995. "Do corporations award CEO stock options effectively?," Journal of Financial Economics, Elsevier, vol. 39(2-3), pages 237-269.
- Yermack, David, 1997.
" Good Timing: CEO Stock Option Awards and Company News Announcements,"
Journal of Finance,
American Finance Association, vol. 52(2), pages 449-76, June.
- David Yermack, 1996. "Good Timing: CEO Stock Option Awards and Company News Announcements," New York University, Leonard N. Stern School Finance Department Working Paper Seires 96-41, New York University, Leonard N. Stern School of Business-.
- Erik Lie, 2005. "On the Timing of CEO Stock Option Awards," Management Science, INFORMS, vol. 51(5), pages 802-812, May.
- Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
- Hall, Brian J. & Murphy, Kevin J., 2002.
"Stock options for undiversified executives,"
Journal of Accounting and Economics,
Elsevier, vol. 33(1), pages 3-42, February.
- Grasselli, Matheus & Henderson, Vicky, 2009. "Risk aversion and block exercise of executive stock options," Journal of Economic Dynamics and Control, Elsevier, vol. 33(1), pages 109-127, January.
- Aboody, David & Kasznik, Ron, 2000. "CEO stock option awards and the timing of corporate voluntary disclosures," Journal of Accounting and Economics, Elsevier, vol. 29(1), pages 73-100, February.
- Philip H. Dybvig & Mark Loewenstein, 2003. "Employee Reload Options: Pricing, Hedging, and Optimal Exercise," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 145-171.
- Fujiwara, Hajime & Kijima, Masaaki, 2007. "Pricing of path-dependent American options by Monte Carlo simulation," Journal of Economic Dynamics and Control, Elsevier, vol. 31(11), pages 3478-3502, November.
- M. P. Narayanan & H. Nejat Seyhun, 2008. "The Dating Game: Do Managers Designate Option Grant Dates to Increase their Compensation?," Review of Financial Studies, Society for Financial Studies, vol. 21(5), pages 1907-1945, September.
- Bettis, J. Carr & Bizjak, John M. & Lemmon, Michael L., 2005. "Exercise behavior, valuation, and the incentive effects of employee stock options," Journal of Financial Economics, Elsevier, vol. 76(2), pages 445-470, May.
- Huddart, Steven & Lang, Mark, 1996. "Employee stock option exercises an empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 21(1), pages 5-43, February.
- Bernile, Gennaro & Jarrell, Gregg A., 2009. "The impact of the options backdating scandal on shareholders," Journal of Accounting and Economics, Elsevier, vol. 47(1-2), pages 2-26, March.
- Heron, Randall A. & Lie, Erik, 2007. "Does backdating explain the stock price pattern around executive stock option grants?," Journal of Financial Economics, Elsevier, vol. 83(2), pages 271-295, February.
- Carmona, Julio & León, Angel & Vaello-Sebastià, Antoni, 2011.
"Pricing executive stock options under employment shocks,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 35(1), pages 97-114, January.
- Ángel León Valle & Antonio Vaello & Julio Carmona, 2009. "Pricing executive stock options under employment shocks," Working Papers. Serie AD 2009-22, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Sircar, Ronnie & Xiong, Wei, 2007. "A general framework for evaluating executive stock options," Journal of Economic Dynamics and Control, Elsevier, vol. 31(7), pages 2317-2349, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.