What is back dating stock options
We believe this research is worth knowing about because if even a few companies are found to be doing this, it could result in all companies facing heavier scrutiny of their disclosures.
Similarly, it’s quite possible that overly simple or incomplete processes may give the semblance of this occurring when in reality there’s no negative intent.
At the same time, the researchers find evidence of more negative 8-K releases before option grants and more positive 8-K releases after option dates, as measured by stock price response to the news.
The disclosure timing appears to have been adjusted two ways: In some cases, the timing appears to involve the use of discretion over actual earnings or accruals to increase stock option compensation.
It took quite a while for the fallout to occur after the results were first disclosed in 2004.
Specifically, their analysis estimates an average abnormal negative return of 1.9% in the 90 days before the option grants, and an average abnormal positive return of 1.1% afterward.
First, let’s review what happened with options backdating that caused the SEC to take action before.
In the 1990s, it became common for companies to backdate the options they granted to their executives.
We’re raising this as a potential issue in the spirit of helping our clients stay ahead of the curve and continuously upgrade their controls.
We’ll get to the specifics of those new findings in a minute.