Download this Paper Open PDF in Browser

What Drives Executive Stock Option Backdating?

44 Pages Posted: 7 Jun 2010 Last revised: 7 Mar 2014

Chris Veld

Monash University

Betty H.T. Wu

University of Glasgow Adam Smith Business School

Multiple version iconThere are 2 versions of this paper

Date Written: August 31, 2013

Abstract

We study motives for executive stock option backdating, the practice of changing the grant dates of current options to dates in the past using hindsight. We find that smaller, younger, and less profitable firms tend to be heavier involved in backdating. These results are consistent with the retention hypothesis. In line with the incentive hypothesis, we find that backdating occurs more for options that are out-of-the-money. We derive some evidence for the agency hypothesis, in the sense that backdating companies have a larger percentage of inside directors. However, contrary to this hypothesis, we conclude that backdating firms have better protection for minority shareholders compared to firms that do not backdate.

Keywords: executive compensation, stock option grants, backdating, corporate governance

JEL Classification: G3

Suggested Citation

Veld, Chris and Wu, Betty H.T., What Drives Executive Stock Option Backdating? (August 31, 2013). Available at SSRN: https://ssrn.com/abstract=1274570 or http://dx.doi.org/10.2139/ssrn.1274570

Chris Veld

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

Betty H.T. Wu (Contact Author)

University of Glasgow Adam Smith Business School ( email )

Glasgow, Scotland
United Kingdom

Paper statistics

Downloads
203
Rank
126,441
Abstract Views
1,340