AbstractWe study the relation between corporate governance and opportunistic timing of CEO option grants via backdating or otherwise. Our methodology focuses on how grant date prices rank within the price distribution of the grant month. During 1996-2005, about 12% of firms provided one or more lucky grant -- defined as grants given at the lowest price of the month -- due to opportunistic timing. Lucky grants were more likely when the board did not have a majority of independent directors and/or the CEO had longer tenure -- factors associated with increased influence of the CEO on pay-setting. We find no evidence that gains from manipulated grants served as a substitute for compensation paid through other sources; total reported compensation from such sources was higher in firms providing lucky grants. Finally, opportunistic timing has been widespread throughout the economy, with a significant presence in each of the economy's twelve (Fama-French) industries.
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Date of creation: Dec 2006
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- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
- K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-01-02 (All new papers)
- NEP-BEC-2007-01-02 (Business Economics)
- NEP-LAW-2007-01-02 (Law & Economics)
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