Define backdating options online dating introduction lettert
He attributed most of this pattern to grant timing, whereby executives would be granted options before predicted price increases.
This pioneering study was published in the Journal of Finance in 1997, and is definitely worth reading.
A particularly interesting example is that of Micrel Inc.
For several years, Micrel allowed its employees to choose the lowest price for the stock within 30 days of receiving the options.
(In fact, it can be argued that if these conditions hold, there is little reason to backdating options, because the firm can simply grant in-the-money options instead.)David Yermack of NYU was the first researcher to document some peculiar stock price patterns around ESO grants.
ESOs are usually granted at-the-money, i.e., the exercise price of the options is set to equal the market price of the underlying stock on the grant date.
However, if the options were effectively in-the-money on the decision date, they might not qualify for such tax deductions.
Unfortunately, these conditions are rarely met, making backdating of grants illegal in most cases.
In a second study forthcoming in the Journal of Financial Economics (available at Randy Heron of Indiana University and I examined the stock price pattern around ESO grants before and after a new SEC requirement in August of 2002 that option grants must be reported within two business days.
The graph below shows the dramatic effect of this new requirement on the lag between the grant and filing dates.