An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Daniel W. Collins
University of Iowa

Guojin Gong
Penn State University

Haidan Li
University of Iowa

Abstract: Section 403 of the Sarbanes-Oxley Act accelerates the reporting deadline of executive stock option grants to be within two days after the grants. This study investigates the effect of Section 403 on the extent of CEO influence over grant date stock prices aimed at enhancing the value of option awards. We find that the accelerated reporting requirement significantly reduces CEO influence over grant date stock prices in the post-SOX period. Specifically, we find that the accelerated reporting requirement (1) deters the opportunistic granting of unscheduled awards after bad news announcements and reduces, but does not eliminate, the granting of unscheduled awards before good news announcements; (2) deters the delaying of good news announcements after scheduled awards; and (3) greatly reduces the apparent use of backdating of option grants. Thus, we provide important evidence on the economic impact of SOX on mitigating executive opportunistic behavior associated with stock option grants.

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