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What Fraction of Stock Option Grants to Top Executives Have Been Backdated or Manipulated?

Author

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  • Randall A. Heron

    (Kelley School of Business, Indiana University, Indianapolis, Indiana 46202)

  • Erik Lie

    (Tippie College of Business, University of Iowa, Iowa City, Iowa 52242)

Abstract

We estimate that 13.6% of all option grants to top executives during the period 1996-2005 were backdated or otherwise manipulated. Our study primarily focuses on grants that were unscheduled and at-the-money, of which we estimate that 18.9% were manipulated. The fraction is 23.0% before the new two-day filing requirement took effect on August 29, 2002, and 10.0% afterward. For the minority of grants that are not filed within the required two-day window, the fraction of manipulated grants remains as high as 19.9%. We further find a higher frequency of manipulation among tech firms, small firms, and firms with high stock price volatility. In addition, firms that use smaller (non-big-five) auditing firms are more likely to file their grants late. Finally, at the firm level, we estimate that 29.2% of firms manipulated grants to top executives at some point between 1996 and 2005.

Suggested Citation

  • Randall A. Heron & Erik Lie, 2009. "What Fraction of Stock Option Grants to Top Executives Have Been Backdated or Manipulated?," Management Science, INFORMS, vol. 55(4), pages 513-525, April.
    • Handle: RePEc:inm:ormnsc:v:55:y:2009:i:4:p:513-525
    DOI: 10.1287/mnsc.1080.0958
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    References listed on IDEAS

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