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Option Backdating and Board Interlocks

John M. Bizjak

Texas Christian University

Michael L. Lemmon

University of Utah - Department of Finance

Ryan J. Whitby

Utah State University

February 1, 2007

Review of Financial Studies, Forthcoming

We examine the role of board connections in explaining how the controversial practice of backdating employee stock options spread to a large number of firms across a wide range of industries. The increase in the likelihood that a firm begins to backdate stock options that can be explained by having a board member who is interlocked to a previously identified backdating firm is approximately one third of the unconditional probability of backdating in our sample. Our analysis provides new insight into how boards function and the role that they play in providing managerial oversight and determining corporate strategy.

Number of Pages in PDF File: 42

Keywords: corporate governance, board of directors, stock options, backdating

JEL Classification: G34, J33, H24, H25

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Date posted: November 24, 2006 ; Last revised: March 20, 2012

Suggested Citation

Bizjak , John M. and Lemmon, Michael L. and Whitby, Ryan J., Option Backdating and Board Interlocks (February 1, 2007). Review of Financial Studies, Forthcoming. Available at SSRN: http://ssrn.com/abstract=946787 or http://dx.doi.org/10.2139/ssrn.946787

Contact Information

John M. Bizjak (Contact Author)
Texas Christian University ( email )
Fort Worth, TX 76129
United States
817-257-4260 (Phone)
Michael L. Lemmon
University of Utah - Department of Finance ( email )
David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-5210 (Phone)
801-581-7214 (Fax)
Ryan J. Whitby
Utah State University ( email )
3500 Old Main Hill
Logan, UT 84322-3500
United States
435.797.9495 (Phone)
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References:  22
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