Backdating of Employee Stock Options: Signaling Effects for Corporate Governance and Internal Control Deficiencies

43 Pages Posted: 12 Jan 2009

See all articles by Jennifer Li

Jennifer Li

Brock University

Fayez A. Elayan

Brock University-Goodman School of Business

Thomas O. Meyer

Southeastern Louisiana University - Department of Marketing and Finance

Date Written: January 9, 2009

Abstract

Backdating occurs when a company retroactively changes option grant dates to a date when its stock was trading at a relatively low price. Firm announcements of backdating have lead to adverse publicity from the media and negative pronouncements from academics regarding the economic effects and motivation of those involved. This research finds that backdating signals to the capital markets that these firms have ineffective governance systems and poor internal controls. Further, nearly half of the backdating investigations show none has occurred or it was unintentional. This indicates the media's negative attention and the impact on share prices was unwarranted in many cases.

Keywords: Backdating, Employee Stock Options, Corporate Governance, Internal Control

JEL Classification: M41

Suggested Citation

Li, Jingyu and Elayan, Fayez A. and Meyer, Thomas Otto, Backdating of Employee Stock Options: Signaling Effects for Corporate Governance and Internal Control Deficiencies (January 9, 2009). CAAA Annual Conference 2009 Paper, Available at SSRN: https://ssrn.com/abstract=1325581 or http://dx.doi.org/10.2139/ssrn.1325581

Jingyu Li

Brock University ( email )

500 Glenridge Avenue
St. Catherines, Ontario L2S 3A1
Canada

Fayez A. Elayan (Contact Author)

Brock University-Goodman School of Business ( email )

1812 Sir Issac Brock Way
St. Catharines, Ontario L2S 3A1
Canada
905-688-5550 (Phone)
905-688-9779 (Fax)

HOME PAGE: http://www.brocku.ca

Thomas Otto Meyer

Southeastern Louisiana University - Department of Marketing and Finance ( email )

SLU 10844
Hammond, LA 70402
United States
985-549-3103 (Phone)
985-549-5010 (Fax)

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