تاثیر رسوایی گزینه های بک دیتینگ در سهامداران

The revelation that scores of firms engaged in the illegal manipulation of stock options’ grant dates (i.e. “backdating”) captured much public attention. The evidence indicates that the consequences stemming from management misconduct and misrepresentation are of first-order importance in this context as shareholders of firms accused of backdating experience large negative, statistically significant abnormal returns. Furthermore, shareholders’ losses are directly related to firms’ likely culpability and the magnitude of the resulting restatements, despite the limited cash flow implications. And, tellingly, the losses are attenuated when tainted management of less successful firms is more likely to be replaced and relatively many firms become takeover targets.

The practice of compensating executives using stock options has spread dramatically across Corporate America in the last two decades. Since 1993, federal tax laws confer corporate tax-deductibility status to option grants, provided that, among other requirements, the exercise price of the options is no less than the market price of the company's stock on the grant date (i.e. the grant is at- or below-the-money). Furthermore, until 2004, the rules governing the reporting of grants allowed firms to delay the recognition of any related expense until the underlying options were exercised. Thus, it is not surprising that, during the period 1996–2004, few option grants were reported as in-the-money (i.e. exercise price lower than grant date stock price), reflecting their compelling reporting and tax disadvantage. and Together with the popularity of stock option compensation have come alleged abuses of this instrument. In his ground-breaking article, Lie (2005) first proposes the “backdating hypothesis” to explain the systematically favorable stock price patterns surrounding option grant dates documented in earlier studies (Yermack, 1997; Aboody and Kasznik, 2000; Chauvin and Shenoy, 2001). Option grant backdating involves issuing (in-the-money) stock options to an employee on one date, while providing documentation falsely asserting that (at-the-money) options were issued at an earlier date when the company's stock price was equal to the disclosed exercise price. On March 18, 2006, The Wall Street Journal (2006) ran the story that many consider to be the spark initiating the backdating scandal. As of December 2006, at least 140 companies were under public scrutiny due to allegations that they engaged in illegal backdating of option grants. 3 Companies accused of backdating face several potential problems as a direct consequence of such allegations. Conducting internal investigations of past option granting practices and correcting companies’ historical financial records and tax returns requires time and resources, which may delay the public release of required financial statements. This delay could cause firms to run afoul of exchange rules, subjecting them to potential or actual delisting of their stock from the exchange. Following internal investigations, for reporting purposes, backdated stock options need to be reclassified as being in-the-money on the true grant date, or surrendered, or repriced. Reclassifying past grants may lower firms’ earnings over the options’ vesting periods. If options are surrendered or repriced (and employees are not compensated in exchange) at worst historical earnings will not change, but they may increase depending on the reporting standard. In cases where these adjustments are material, historical financial records need to be restated and reissued to the investment community. The tax rules regulating the treatment of at- versus in-the-money options are different both at the employee and at the firm level. Thus, correcting backdated options requires that tax computations be redone and both the company and its employees become potentially subject to the IRS for back-taxes, penalties, and interest. Furthermore, correcting backdated options may require: cooperating with investigations by outside regulatory agencies; dealing with class-action lawsuits and/or derivative actions by shareholders; paying make-whole bonuses to employees who received backdated options; and potentially violating debt covenants, forcing renegotiation, and/or payment of the resulting penalties.4 Despite the fact that correcting for backdating may result in large, downward adjustments to companies’ reported earnings, the effect on cash flows is not uniformly negative or material. First, option compensation is a non-cash expense and its value can always be estimated, as of the grant disclosure date and thereafter, provided grants’ characteristics are truthfully disclosed. Thus, on average, correcting historical financial records should have no direct effect, per se, on shareholders’ wealth. Second, the cash flow effects due to tax corrections at the firm level, so far, have more often than not been positive. When negative, they do not typically represent a significant portion of the affected companies’ market capitalization. Third, as foreseeable, the cost of lawyers and accountants hired to conduct internal investigations, cooperate with government agencies, and deal with shareholder litigation has reportedly been in the order of several million dollars. Nonetheless, the available evidence suggests these out-of-pocket costs are relatively small. Furthermore, so far, companies have not borne significant penalties, and even benefited in some case as a result of employees disgorging the ill-gotten gains from and/or forfeiting the tainted options without make-whole bonuses. Because the direct cash flows due the backdating scandal are arguably relatively small, our null hypothesis (Direct Cost Hypothesis) posits that a firm's involvement in the scandal is of no economic relevance. Stock prices, thus, should not react significantly to the numerous backdating-related disclosures we analyze, except to reflect out-of-pocket costs.

Unlike other types of fraud, revelations of stock option backdating have a relatively small effect on cash flows. Absent unconditional out-of-pocket costs and tax adjustments, one could argue the backdating scandal should not affect shareholders (Direct Cost Hypothesis). Alternatively, investors’ reaction to backdating news may reflect an increase in perceived agency costs and information risk, if the accusations impair the reputation and credibility of targeted companies (Agency Hypothesis). We measure the stock market reaction to the option backdating scandal based on over 750 news events distributed across 129 firms. Upon being involved in the scandal, firms experience large, negative abnormal returns, with declines in equity values of hundreds of millions of dollars that seem larger than any reasonable estimate of out-of-pocket costs. Additional tests further support the agency hypothesis. Investors’ reaction to backdating accusations is negatively related to firms’ likely culpability and, consistent with increased information risk, shareholders’ losses are directly related to the magnitude of the resulting earnings restatements, despite their effect on cash flows being arguably small. Most revealingly, our tests show that, for relatively worse performing firms, a higher likelihood of management turnover following the scandal has a positive effect on shareholders’ wealth, whereas executives’ departure does not benefit nor harm shareholders of better performing firms. Finally, we find that institutional investors tend to liquidate their holdings in the accused companies, and that almost ten percent of the firms accused of backdating become takeover targets in the calendar year following the accusations. In conclusion, despite the contention that option backdating is not economically relevant, it appears investors place significant weight on the information conveyed by backdating accusations. Therefore, one should be careful to not underestimate the value of management honesty and integrity, even when firm insiders’ misconduct may seem inconsequential.