June 2007 Vol. 105 No. 8 THE REVIEW

The Economic Impact of Backdating of Executive Stock Options

M. P. Narayanan, Cindy A. Schipani, & H. Nejat Seyhun

This Article discusses the economic impact of legal, tax, disclosure, and incentive issues arising from the revelation of dating games with regard to executive option grant dates. It provides an estimate of the value loss incurred by shareholders of firms implicated in backdating and compares it to the potential gain that executives might have obtained through backdating. Using a sample of firms that have already been implicated in backdating, we find that the revelation of backdating results in an average loss to shareholders of about seven percent. This translates to about $400 million per firm. By contrast, we estimate that the average potential gain from backdating to all executives in these firms is about $500,000 per firm annually. We suggest some remedies not only for backdating, but also for other dubious practices such as springloading.

   //  VIEW PDF
& Other Current Events

Cultivating Inclusion

Twenty-five years ago, law schools were in the developing stages of a pitched battle for the future of legal...

Aftermarketfailure: Windows XP's End of Support

"After 12 years, support for Windows XP will end on April 8, 2014." So proclaims a Microsoft website with...

Globally Speaking—Honoring the Victims' Stories: Matsuda's Human Rights Praxis

Globally speaking, international law and the vast majority of domestic legal systems strive to protect...

Toward A Multiple Consciousness of Language: A Tribute to Professor Mari Matsuda

I am thrilled to be part of this commemoration of the twenty-fifth anniversary of Professor Matsuda's...

House Swaps: A Strategic Bankruptcy Solution to the Foreclosure Crisis

Since the price peak in 2006, home values have fallen more than 30 percent, leaving millions of Americans...
MAILING LIST
Sign Up to Join Our Mailing List