Impact of backdating
Conversely, variables one would expect to be related to the magnitude of direct out-of-pocket expenses, namely the number of past grants and/or their value, are not significantly related or are positively related to shareholders’ wealth effects, inconsistent with the direct cost hypothesis.
In addition, consistent with this interpretation, the occurrence of government investigations or delisting notices have no incremental explanatory power, after controlling for firms’ likely culpability.
For the first news event (typically the announcement of an internal investigation by the firm), we find a statistically significant excess return of about -4.50% in the -20 to -2 window and -2.40% in the -1 to 1 window.This paper provides an overview of (1) the basics of employee stock option backdating; (2) why firms and individuals may engage in backdating; (3) the difficulties in examining option backdating in Canada as well as a Canadian case study of option backdating; (4) implications of backdating; and (5) suggestions for curbing the potential to backdate in Canada. Murphy, ―Executive Compensation‖ in Orley Ashenfelter and David Card (eds.), Handbook of Labor Economics, Vol. Murphy, ―The Trouble with Stock Options‖ (2003) vol. 3 Journal of Economic Perspectives 49-70; The Conference Board, The 2006 Top Executive Compensation Report (New York: The Conference Board, 2006). Backdating employment dates is fraud on multiple levels, including possibly insurance (if offered), financial reporting and accounting, and state/federal employment reporting. If the backdating creates fiction, it’s also likely grounds for discipline, up to and including termination, for the employee(s) who do it.