The Accounting Review (January 2013): 75-105.
52 Pages Posted: 1 Sep 2010 Last revised: 30 May 2014
Date Written: June 22, 2012
We find the likelihood of forced turnover in the CEO and CFO positions is significantly higher in the aftermath of option backdating than in propensity-score-matched control firms. Forced turnover occurs in about 36 percent of the accused firms. The forced turnover rates for CEOs and CFOs are similar and several times higher than normal. The displaced managers are further punished by the managerial labor market, as they are much less likely than control firm managers to be rehired at comparable positions. We also find that backdating firms restructure CEO compensation to rely less on stock options. Finally, we learn the higher turnover extends to the General Counsel. While boards are often viewed as unresponsive to criticisms involving executive compensation, they did respond quite decisively to option backdating allegations and the accompanying adverse publicity.
Keywords: Stock Option Compensation, Option Backdating, Executive Turnover, Corporate Governance
JEL Classification: M41
Suggested Citation: Suggested Citation
Efendi, Jap and Files, Rebecca and Ouyang, Bo and Swanson, Edward P., Executive Turnover Following Option Backdating Allegations (June 22, 2012). The Accounting Review (January 2013): 75-105.. Available at SSRN: https://ssrn.com/abstract=1670116 or http://dx.doi.org/10.2139/ssrn.1670116
By Kevin Murphy