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Option Backdating and Board Interlocks

42 Pages Posted: 24 Nov 2006 Last revised: 1 Feb 2016

John M. Bizjak

Texas Christian University

Michael L. Lemmon

University of Utah - Department of Finance

Ryan J. Whitby

Utah State University - Huntsman School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2007

Abstract

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.

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

JEL Classification: G34, J33, H24, H25

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, 2009, 22, 4821-4847. Available at SSRN: https://ssrn.com/abstract=946787 or http://dx.doi.org/10.2139/ssrn.946787

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 - Huntsman School of Business ( email )

3500 Old Main Hill
Logan, UT 84322-3500
United States
435.797.9495 (Phone)

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