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The impact of the options backdating scandal on shareholders

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  • Bernile, Gennaro
  • Jarrell, Gregg A.
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    Abstract

    The revelation that scores of firms engaged in the illegal manipulation of stock options' grant dates (i.e. "backdating") captured much public attention. 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. 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.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Accounting and Economics.

    Volume (Year): 47 (2009)
    Issue (Month): 1-2 (March)
    Pages: 2-26

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    Handle: RePEc:eee:jaecon:v:47:y:2009:i:1-2:p:2-26

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    Web page: http://www.elsevier.com/locate/jae

    Related research

    Keywords: Agency costs Event-study Option backdating Corporate scandal;

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    Cited by:
    1. Carver, Brian T. & Cline, Brandon N. & Hoag, Matthew L., 2013. "Underperformance of founder-led firms: An examination of compensation contracting theories during the executive stock options backdating scandal," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 294-310.
    2. Larcker, David F. & So, Eric C. & Wang, Charles C. Y., 2010. "Boardroom Centrality and Stock Returns," Research Papers 2061, Stanford University, Graduate School of Business.
    3. Carow, Kenneth & Heron, Randall & Lie, Erik & Neal, Robert, 2009. "Option grant backdating investigations and capital market discipline," Journal of Corporate Finance, Elsevier, vol. 15(5), pages 562-572, December.
    4. 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.
    5. Dong, Zhiyong & Wang, Cong & Xie, Fei, 2010. "Do executive stock options induce excessive risk taking?," Journal of Banking & Finance, Elsevier, vol. 34(10), pages 2518-2529, October.
    6. Eikseth, Hans Marius & Lindset, Snorre, 2011. "Backdating executive stock options--An ex ante valuation," Journal of Economic Dynamics and Control, Elsevier, vol. 35(10), pages 1731-1743, October.
    7. Files, Rebecca, 2012. "SEC enforcement: Does forthright disclosure and cooperation really matter?," Journal of Accounting and Economics, Elsevier, vol. 53(1), pages 353-374.

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