Backdating and Director Incentive: Money or Reputation

36 Pages Posted: 10 Mar 2009

See all articles by Kristina Minnick

Kristina Minnick

Bentley University

Mengxin Zhao

Securities and Exchange Commission (SEC)

Date Written: March 9, 2009

Abstract

This paper investigates how director incentives affect the occurrence of firms' backdating employee stock options. Directors with more wealth tied up in stock options may pursue activities that lead to personal gain, such as option backdating, which potentially increases the option recipient's compensation. We document a positive and significant association between director option compensation and the likelihood that firms backdate stock options. Our results question the effectiveness of director option compensation in aligning the interests with those of shareholders and help to explain the recent decline in the use of director option grants by many firms.

Keywords: option backdating, director compensation, pay-for-performance sensitivity

JEL Classification: G34, G30

Suggested Citation

Minnick, Kristina and Zhao, Mengxin, Backdating and Director Incentive: Money or Reputation (March 9, 2009). Journal of Financial Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1356006

Kristina Minnick (Contact Author)

Bentley University ( email )

175 Forest Street
Waltham, MA 02154
United States

HOME PAGE: http://www.profminnick.com/

Mengxin Zhao

Securities and Exchange Commission (SEC) ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
183
Abstract Views
1,071
rank
165,855
PlumX Metrics