The Stock Option Backdating Litigation: An Empirical Investigation

29 Pages Posted: 28 Apr 2014

See all articles by Ross D. Fuerman

Ross D. Fuerman

Suffolk University - Department of Accounting

Date Written: April 27, 2014

Abstract

This paper adds to the stock option backdating literature by examining the litigation it spawned. The stock option backdating litigation ("SOBL"), compared to the contemporaneous typical financial reporting litigation, is negatively associated with auditor defendants, bankruptcy, and the amount of the aggregate settlements paid directly to the shareholders. It is positively associated with the computer industry, stock option backdating restatements, and US companies. In comparing the derivative lawsuit-only SOBL to the SOBL with related securities class actions, it was found that the derivative lawsuit-only SOBL is negatively associated with auditor defendants, fraud, revenue restatements, and the forced departure of executives implicated in stock option backdating. In the final analysis – of the factors associated with the amount of the SOBL securities class action settlement with the shareholders – the forced departure of executives implicated in stock option backdating was positively associated with the settlement amount. The results suggest that securities class actions may be more effective than derivative lawsuits in deterring fraud, and that their effectiveness is positively associated with their successful prosecution.

Keywords: Stock option backdating, securities class actions, derivative lawsuits, fraud deterrence

JEL Classification: K22, K41, M41, M52

Suggested Citation

Fuerman, Ross D., The Stock Option Backdating Litigation: An Empirical Investigation (April 27, 2014). Available at SSRN: https://ssrn.com/abstract=2429935 or http://dx.doi.org/10.2139/ssrn.2429935

Ross D. Fuerman (Contact Author)

Suffolk University - Department of Accounting ( email )

Sawyer Business School
Department of Accounting
Boston, MA 02108
United States
617-573-8615 (Phone)

HOME PAGE: http://www.suffolk.edu/business/faculty/12328.php

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