Option Backdating: Market Overreaction and Management Motives

46 Pages Posted: 16 Jan 2011  

Jennifer Li

Brock University

Fayez A. Elayan

Brock University-Goodman School of Business

Thomas O. Meyer

Southeastern Louisiana University - Department of Marketing and Finance

Parunchana Pacharn

Brock University

Date Written: January 15, 2011

Abstract

Prior studies on option backdating have focused exclusively on the initial backdating investigation announcements. We extend the analyses to consider the outcomes of the investigation as well. By examining the market responses both to the initial investigation announcement and to the investigation outcome, we provide an evidence that the market may have overreacted to the initial investigation announcement. Our results also show that the media bias in covering more bad than good news may have contributed to the overreaction. Finally, we re-examine the issue of management motives, focusing on firms which were found to be guilty of intentional backdating. No prior study has addressed the motive issues with the sample of “true” backdators before.

Keywords: Backdating, Employee Stock Options, Overreaction

JEL Classification: M41

Suggested Citation

Li, Jennifer and Elayan, Fayez A. and Meyer, Thomas O. and Pacharn, Parunchana, Option Backdating: Market Overreaction and Management Motives (January 15, 2011). CAAA Annual Conference 2011. Available at SSRN: https://ssrn.com/abstract=1741364 or http://dx.doi.org/10.2139/ssrn.1741364

Jennifer Li

Brock University ( email )

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

Fayez A. Elayan

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)

Parunchana Pacharn (Contact Author)

Brock University ( email )

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

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