Option backdating board interlocks great expectations dating service oprah

A new study by finance professors suggests that the backdating of stock options may be a much more wide-spread practice than once thought.Initially, many believed that stock option backdating might have been concentrated in the high tech area.This finding also undermines the theory that outside directors will serve as a watchdog on improper management practices.If correct, it means the watchdog is the source of what may –backdating is not illegal in and of itself – be an improper practice.We do not find that boards reinstate the weakened incentives due to hedging by making ex-post adjustments to CEO compensation.Additionally, these instruments are more likely to be used by insiders of companies with weaker governance mechanisms.

Prudence dictates that companies take a proactive approach, conducting an internal investigation into its past option granting practices followed by taking any necessary corrective steps.This conclusion would clearly make the practice much more wide-spread than anyone had initially thought.The study also suggests that the practice may have proliferated as a result of directors who held positions on more than one board.We use this large sample to explore: the frequency and contractual nature of such awards; whether performance-vesting (p-v) provisions specify meaningful performance hurdles for executives; the magnitude of the incentives to increase value or risk conferred on executives by p-v provisions; the influence the provisions have on accounting and stock-price performance, financial policy, investment policy, and earnings management; and the relation of the propensity to use p-v provisions and the height and form of the vesting hurdle to firm, governance and CEO characteristics.Following the study by Bizjak, Lemmon, and Naveen (2008) we collect the compensation peer groups reported in corporate proxy statements for the S&P 1500 firms.

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