Effect of Sarbanes-Oxley Act on the Influencing of Executive Compensation

45 Pages Posted: 17 Aug 2006

See all articles by M. P. Narayanan

M. P. Narayanan

University of Michigan, Stephen M. Ross School of Business

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business

Date Written: November 2005

Abstract

An analysis of over 569,000 option grant filings by insiders after the imposition of the two-day reporting rule by the Sarbanes-Oxley Act (SOX) reveals that post-grant date market-adjusted stock returns are positive but lower in magnitude than pre-SOX figures, suggesting that SOX has curtailed, but not eliminated, managerial influencing of the grant day stock price. The post-grant date market adjusted stock returns are significantly more positive in the sample of late-reported grants, consistent with stock price influencing either through back-dating the grant date or timing the grant date or information flow with the intent to camouflage. The results suggest that strict enforcement of the two-day reporting rule can significantly reduce managers' ability to use these channels of influence.

Keywords: Sarbanes-Oxley Act, Executive Compensation, Corporate Governance, Backdating, Executive Stock Options

JEL Classification: G30, G34, G38, K22, K42

Suggested Citation

Narayanan, M. P. and Seyhun, H. Nejat, Effect of Sarbanes-Oxley Act on the Influencing of Executive Compensation (November 2005). Available at SSRN: https://ssrn.com/abstract=852964 or http://dx.doi.org/10.2139/ssrn.852964

M. P. Narayanan (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-5936 (Phone)
734-936-0274 (Fax)

H. Nejat Seyhun

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-763-5463 (Phone)

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