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Open Access. Powered by Scholars. Published by Universities.®

University of Michigan Law School

2007

Symposia

Tax Law

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Full-Text Articles in Law

The Economic Impact Of Backdating Of Executive Stock Options, M. P. Narayanan, Cindi A. Schipani, H. Nejat Seyhun Jun 2007

The Economic Impact Of Backdating Of Executive Stock Options, M. P. Narayanan, Cindi A. Schipani, H. Nejat Seyhun

Michigan Law Review

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 7%. This translates to about $400 million per firm. By contrast, we estimate that the …