Option Backdating and Board Interlocks

Posted: 8 Dec 2009

See all articles by John M. Bizjak

John M. Bizjak

Texas Christian University

Michael 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: November 2009

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.

JEL Classification: G30, G32, G38, J33

Suggested Citation

Bizjak, John M. and Lemmon, Michael and Whitby, Ryan J., Option Backdating and Board Interlocks (November 2009). The Review of Financial Studies, Vol. 22, Issue 11, pp. 4821-4847, 2009. Available at SSRN: https://ssrn.com/abstract=1519264 or http://dx.doi.org/hhn120

John M. Bizjak (Contact Author)

Texas Christian University ( email )

Fort Worth, TX 76129
United States
817-257-4260 (Phone)

Michael Lemmon

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States

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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