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Backdating, tax evasion, and the unintended consequences of Canadian tax reform

  • Compton, Ryan
  • Sandler, Daniel
  • Tedds, Lindsay M.

In 1984 and 2000, significant changes were made to the tax treatment of employee stock options in Canada. Although designed to increase the use of stock options as a compensation vehicle (1984) and decease the loss of knowledge workers (2000), we argue that these tax changes were largely ineffective and perhaps unneeded. Further we demonstrate the negative unintended consequences of these actions, specifically that they reward the backdating of employee stock options and promote tax evasion, and discuss the policy implications of these unintended consequences.

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File URL: https://mpra.ub.uni-muenchen.de/39788/1/MPRA_paper_39788.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39788.

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Date of creation: 2010
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Publication status: Published in Tax Notes International 9.59(2010): pp. 671
Handle: RePEc:pra:mprapa:39788
Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, Germany
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Web page: https://mpra.ub.uni-muenchen.de

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  1. Donohue, John J. & Levitt, Steven D., 2000. "The Impact of Legalized Abortion on Crime," Berkeley Olin Program in Law & Economics, Working Paper Series qt00p599hk, Berkeley Olin Program in Law & Economics.
  2. Chip Heath & Steven Huddart & Mark Lang, 1999. "Psychological Factors And Stock Option Exercise," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 601-627, May.
  3. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 49-70, Summer.
  4. Ittner, Christopher D. & Lambert, Richard A. & Larcker, David F., 2003. "The structure and performance consequences of equity grants to employees of new economy firms," Journal of Accounting and Economics, Elsevier, vol. 34(1-3), pages 89-127, January.
  5. Erik Lie, 2005. "On the Timing of CEO Stock Option Awards," Management Science, INFORMS, vol. 51(5), pages 802-812, May.
  6. David Zarifa & David Walters, 2008. "Revisiting Canada's Brain Drain: Evidence from the 2000 Cohort of Canadian University Graduates," Canadian Public Policy, University of Toronto Press, vol. 34(3), pages 305-320, September.
  7. David Joulfaian, 2000. "Corporate Income Tax Evasion and Managerial Preferences," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 698-701, November.
  8. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  9. Compton, Ryan & Sandler, Daniel & Tedds, Lindsay M., 2010. "Options backdating: a Canadian perspective," MPRA Paper 39787, University Library of Munich, Germany.
  10. 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.
  11. Brian J. Hall & Jeffrey B. Liebman, 2000. "The Taxation of Executive Compensation," NBER Chapters, in: Tax Policy and the Economy, Volume 14, pages 1-44 National Bureau of Economic Research, Inc.
  12. 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.
  13. Eli Ofek & David Yermack, 2000. "Taking Stock: Equity-Based Compensation and the Evolution of Managerial Ownership," Journal of Finance, American Finance Association, vol. 55(3), pages 1367-1384, 06.
  14. Carpenter, Jennifer N & Remmers, Barbara, 2001. "Executive Stock Option Exercises and Inside Information," The Journal of Business, University of Chicago Press, vol. 74(4), pages 513-34, October.
  15. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," NBER Working Papers 9784, National Bureau of Economic Research, Inc.
  16. 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.
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