What is back dating stock options

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For example, companies might aggressively report cost amortizations before the grant date or postpone announcing positive strategies until after the grant date.Additionally, the researchers report that the data yielded a stronger stock price pattern for larger option grants to the CEO.It’s also worth noting that the original backdating scandal began after an academic, Erik Lie, published a similar study of anomalous returns before and after option grants attributing this to backdating.In fact, Lie notes that David Yermack of NYU also detected the pattern in research published in 1997, but the pattern was attributed to expectations of price increases, not backdating.In our experience working with executives, they have a lot more on their minds than a few upcoming equity award grants.Nevertheless, if history is at all predictive, these early warning bells are worth examining if just to improve overall granting practices.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.

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We find this new evidence a little surprising, as current regulatory enforcement and public scrutiny are very strict regarding options compensation.

This lack of process led to employees being worse off than had the best practice been followed.

The resolution was to require new grants to be disclosed within two business days, making the long lookback required to backdate an impossibility.

Soon after granting the options, stocks tended to rebound.

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.

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