Just Lucky? A Statistical Test for Option Backdating

11 Pages Posted: 3 Apr 2007

Date Written: March 27, 2007


The literature in financial economics provides convincing evidence of retroactive timing of executive stock option grants (option "backdating"). However, the literature does not yet contain a methodology for detecting backdating at individual companies. The present paper seeks to fill this gap. Specifically, it describes a rigorous statistical test for backdating based on publicly available data. In addition, it identifies a flaw in the methodology employed by the Wall Street Journal (Forelle and Bandler, 2006) to calculate the odds that the timing of executive stock option grants was purely random, and it provides experimental evidence that this flaw could in practice distort the assessment of odds.

Keywords: option backdating, statistics

JEL Classification: G30

Suggested Citation

Goldberg, Richard E. and Read, James, Just Lucky? A Statistical Test for Option Backdating (March 27, 2007). Available at SSRN: https://ssrn.com/abstract=977518 or http://dx.doi.org/10.2139/ssrn.977518

Richard E. Goldberg (Contact Author)

Brattle Group ( email )

44 Brattle Street
3rd Floor
Cambridge, MA 02138-3736
United States

James Read

The Brattle Group ( email )

1 Beacon Street
Suite 2600
Boston, MA 02108
United States

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