How Do Accounting Practices Spread? An Examination of Law Firm Networks and Stock Option Backdating

• 成果类型: Article
• 署名作者: Dechow, Patricia M.; Tan, Samuel T.
• 署名单位: University of Southern California; Singapore Management University
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/tar-2017-0051
• 发表日期: 2021
• 页码: 431-464
• 关键词: bandwagon; awards

摘要

We hypothesize that one way accounting practices spread is through law firm connections. We investigate this prediction by examining companies that avoided reporting compensation expense by engaging in stock option backdating. We hypothesize that executives engaged in backdating because they were desensitized to its inappropriateness when they learned through their legal counsel that other companies were engaging in this practice. We identify backdating companies through backdating-related restatements of earnings. Using network analysis, we find that backdating companies are highly connected with other backdating companies via shared law firms. Logistic regressions reveal that the odds of a company backdating are 53 to 88 percent higher when its law firm has another client that backdates, and that law firm connections are incremental to board interlocks and geographic location. Finally, law firms with backdating clients have more other clients with lucky grants, suggesting that backdating spread to other companies, but only some restated.