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http://ssrn.com/abstract=971137
 
 

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The Impact of the Options Backdating Scandal on Shareholders


Gennaro Bernile


Singapore Management University - Lee Kong Chian School of Business

Gregg A. Jarrell


University of Rochester - Simon School

June 1, 2008

Journal of Accounting & Economics (JAE), Vol. 47, No. 1, 2009

Abstract:     
The revelation that scores of firms engaged in the illegal manipulation of stock options' grant dates (i.e. "backdating") captured much public attention. The evidence indicates that the consequences stemming from management misconduct and misrepresentation are of first-order importance in this context as shareholders of firms accused of backdating experience large negative, statistically significant abnormal returns. Furthermore, shareholders' losses are directly related to firms' likely culpability and the magnitude of the resulting restatements, despite the limited cash flow implications. And, tellingly, the losses are attenuated when tainted management of less successful firms is more likely to be replaced, whereas relatively many firms become takeover targets. We believe this evidence is relevant to the ongoing debate about the economic relevance of seemingly inconsequential corporate misdeeds, in general, and option grants manipulation, in particular.

Number of Pages in PDF File: 57

Keywords: agency costs, event-study, backdating, corporate scandal

JEL Classification: G14, J33, M43

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Date posted: March 27, 2008 ; Last revised: November 12, 2013

Suggested Citation

Bernile, Gennaro and Jarrell, Gregg A., The Impact of the Options Backdating Scandal on Shareholders (June 1, 2008). Journal of Accounting & Economics (JAE), Vol. 47, No. 1, 2009. Available at SSRN: http://ssrn.com/abstract=971137 or http://dx.doi.org/10.2139/ssrn.971137

Contact Information

Gennaro Bernile (Contact Author)
Singapore Management University - Lee Kong Chian School of Business ( email )
50 Stamford Road
Level 4
Singapore, 178899
Singapore
+65-68085478 (Phone)

Gregg A. Jarrell
University of Rochester - Simon School ( email )
Carol Simon Hall 4-110H
Rochester, NY 14627
United States
585-275-3914 (Phone)
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