What drives executive stock option backdating?

Veld, C. and Wu, B. H.T. (2014) What drives executive stock option backdating? Journal of Business Finance and Accounting, 41(7-8), pp. 1042-1070. (doi: 10.1111/jbfa.12077)

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 heavier 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.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Wu, Dr Betty and Veld, Professor Chris
• Authors: Veld, C., and Wu, B. H.T.
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: Journal of Business Finance and Accounting
• Publisher: Wiley
• ISSN: 0306-686X
• ISSN (Online): 1468-5957
• Published Online: 24 April 2014
• Copyright Holders: Copyright © 2014 John Wiley & Sons Ltd
• First Published: First published in Journal of Business Finance and Accounting 41(7-8):1042-1070
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher