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Is it timing or backdating of option grants?

  • van der Goot, Tjalling
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    Using a unique dataset from the Netherlands, we investigate three questions of interest. First, we explore the effects of a rule change in September 2002 on option grant dates. Second, we examine the retroactive backdating of option grant dates. Finally, we look at the timing of option grant dates along with news releases around those dates. The outcome of the analyses shows that there are no significant abnormal cumulative returns in the period before the option grant date. However, we find significant abnormal cumulative returns during a period of 30 trading days thereafter, even for scheduled options granted before September 2002. Furthermore, it appears that earnings news releases around option grant dates are managed. The empirical results provide evidence that the timing of news can be seen as a substitute for both backdating option grants and the timing of the option grant date after September 2002. The paper presents novel findings that option grants are retroactively backdated. The latter outcome is based not only on the effects of the change in legislation, but also on an analysis of the relation between the number of options granted and the difference between the highest annual stock price and the exercise price of the option grants. These findings are robust under different model specifications.

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    File URL: http://www.sciencedirect.com/science/article/B6V7M-4YMPX7P-3/2/b2d027ade199d1f07621736bd914a002
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    Article provided by Elsevier in its journal International Review of Law and Economics.

    Volume (Year): 30 (2010)
    Issue (Month): 3 (September)
    Pages: 209-217

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    Handle: RePEc:eee:irlaec:v:30:y:2010:i:3:p:209-217
    Contact details of provider: Web page: http://www.elsevier.com/locate/irle

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    1. Paul Oyer & Scott Schaefer, 2004. "Why Do Some Firms Give Stock Options to All Employees?: An Empirical Examination of Alternative Theories," NBER Working Papers 10222, National Bureau of Economic Research, Inc.
    2. 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-.
    3. Peter Roosenboom & Tjalling van der Goot, 2006. "Broad-based employee stock options grants and IPO firms," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1343-1351.
    4. 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.
    5. Oyer, Paul, 2001. "Why Do Firms Use Incentives That Have No Incentive Effects?," Research Papers 1686, Stanford University, Graduate School of Business.
    6. Core, John E. & Guay, Wayne R., 2001. "Stock option plans for non-executive employees," Journal of Financial Economics, Elsevier, vol. 61(2), pages 253-287, August.
    7. 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.
    8. Erik Lie, 2005. "On the Timing of CEO Stock Option Awards," Management Science, INFORMS, vol. 51(5), pages 802-812, May.
    9. 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.
    10. Baker, Malcolm & Gompers, Paul A, 2003. "The Determinants of Board Structure at the Initial Public Offering," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 569-98, October.
    11. Chauvin, Keith W. & Shenoy, Catherine, 2001. "Stock price decreases prior to executive stock option grants," Journal of Corporate Finance, Elsevier, vol. 7(1), pages 53-76, March.
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