Taxes and the backdating of stock option exercise dates

We investigate the backdating of stock option exercises. Before SOX, we find evidence that some exercises were backdated to days with low stock prices. Consistent with a tax-based incentive, these suspect exercises are more likely when the personal tax savings from backdating are higher. However, su...

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Bibliographic Details
Published inJournal of accounting & economics Vol. 47; no. 1; pp. 27 - 49
Main Authors Dhaliwal, Dan, Erickson, Merle, Heitzman, Shane
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.03.2009
Elsevier
Elsevier Sequoia S.A
SeriesJournal of Accounting and Economics
Subjects
Backdating
Chief executive officers
Compensation
Dating
Estimated taxes
Financial management
Insider dealing
Insider trading
Options on stocks
Regulation
Savings
Scandals
Stock option compensation
Stock option compensation Backdating Taxes Insider trading Regulation
Stock options
Studies
Tax incentives
Taxes
United States > US
Insider trading
Taxes
K22
Stock option compensation
Regulation
H24
J33
Backdating
D82
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Summary:We investigate the backdating of stock option exercises. Before SOX, we find evidence that some exercises were backdated to days with low stock prices. Consistent with a tax-based incentive, these suspect exercises are more likely when the personal tax savings from backdating are higher. However, suspect CEO exercises generate average (median) estimated tax savings of $96,000 ($7,000). These savings appear modest relative to the costs insiders and firms face. We find that the likelihood of a suspect exercise increases in the likelihood of option grant backdating. This suggests that agency problems associated with backdating permeate option compensation in some firms.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0165-4101
1879-1980
DOI:10.1016/j.jacceco.2008.09.004