Stock Option Backdating: Implications for Private Companies
Journal of Accounting, Ethics & Public Policy, Volume 8, No. 3 (2007)
20 Pages Posted: 2 Jan 2013
Date Written: 2007
The stock option backdating scandal has been widely covered for public companies in the last few years. However, there is little to no literature available on its impact on private companies. This paper discusses the accounting, tax, securities and corporate governance issues that may influence a private company to backdate options. The paper posits that private companies may be motivated to backdate the grant date of stock options due to financial accounting rules, restrictions in Rule 701 promulgated under the Securities Act of 1933, and/or governance oversights. Further, it poses that employees of private companies may be motivated to manipulate the exercise date of stock options in an attempt to dodge tax payments. It also summarizes certain accounting, tax, securities and governance implications of illegal backdating practices for private companies and concludes with some recommendations for eliminating backdating problems for such companies.
Keywords: stock option, backdating, Rule 701
JEL Classification: M4
Suggested Citation: Suggested Citation