What Drives Executive Stock Option Backdating?

29 Pages Posted: 20 Oct 2014

See all articles by Chris Veld

Chris Veld

Monash University

Betty H.T. Wu

University of Glasgow Adam Smith Business School

Multiple version iconThere are 2 versions of this paper

Date Written: September/October 2014

Abstract

We study motives for executive stock option backdating, the practice of changing the grant dates of current options to dates in the past using hindsight. We find that smaller, younger and less profitable firms tend to be more heavily involved in backdating. These results are consistent with the retention hypothesis. In line with the incentive hypothesis, we find that backdating occurs more for options that are out‐of‐the‐money. We derive some evidence for the agency hypothesis, in the sense that backdating companies have a larger percentage of inside directors. However, contrary to this hypothesis, we conclude that backdating firms have better protection for minority shareholders compared to firms that do not backdate.

Keywords: executive compensation, stock option grants, backdating, corporate governance

Suggested Citation

Veld, Chris and Wu, Betty H.T., What Drives Executive Stock Option Backdating? (September/October 2014). Journal of Business Finance & Accounting, Vol. 41, Issue 7-8, pp. 1042-1070, 2014. Available at SSRN: https://ssrn.com/abstract=2511991 or http://dx.doi.org/10.1111/jbfa.12077

Chris Veld (Contact Author)

Monash University ( email )

Building 11E
Clayton, Victoria 3800
Australia

Betty H.T. Wu

University of Glasgow Adam Smith Business School ( email )

Glasgow, Scotland
United Kingdom

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