The economic consequences of ceasing option backdating

• 成果类型: Article
• 署名作者: Chen, Szu-fan
• 署名单位: Hong Kong University of Science & Technology
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-022-09681-5
• 发表日期: 2023
• 页码: 2039-2074
• 关键词: CORPORATE GOVERNANCE; information-content; INSIDER TRADES; FRAUD; CEOS

摘要

The 2002 enactment of Section 403(a) of the Sarbanes-Oxley Act (SOX403) made option backdating less viable for firms. I examine whether the loss of the benefits obtained from option backdating is associated with more fraud after the enactment of SOX403. For firms suspected of backdating options (suspect firms), I find an increase in fraudulent financial reporting after the enactment of SOX403. The increase in fraud is more prominent for suspect firms more affected by SOX403. I also find an increase in insider trading profits from fraud for individuals who formerly benefited from option backdating. My study highlights an unintended consequence of SOX403. The opportunistic timing of executive option compensation appears to be replaced with fraudulent activities that are likely more value-destroying.