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Corporate Governance and Backdating of Executive Stock Options
Daniel W. Collins, University of Iowa
Guojin Gong, Penn State University
Haidan Li, University of Iowa
ABSTRACT. This paper investigates whether weak corporate governance is a contributing factor to the incidence of backdating executive stock option awards. The corporate governance attributes that we analyze are designed to capture board independence, the level of CEO power over the board and the compensation committee, interlocking directorships among backdating firms, institutional ownership, outside blockholders on the compensation committee, the importance of option grants to CEO and director compensation, and whether directors share in the benefits of backdating. We examine a sample of S&P 1500 firms that exhibit evidence of backdating along with samples of backdating firms identified using several alternative criteria used in concurrent research and a sample of firms currently under backdating investigation. Overall, the evidence suggests that weaker corporate governance that allows CEOs to exercise greater influence over board decisions increases the likelihood of backdating.
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