Stock market reactions to regulatory investigations: Evidence from options backdating

Sakshi Jain, Pankaj Jain and Zabihollah Rezaee

Research in Accounting Regulation, 2010, vol. 22, issue 1, 52-57

Abstract: Option backdating practices have resulted in broad regulatory scrutiny, formal inquiries by federal authorities, and internal investigations by companies. In this paper, we investigate stock market reactions to option backdating probe announcements. For the 245 implicated companies, we detect negative abnormal stock returns, which are modest for internal investigation, larger for SEC probes, and the most severe for Department of Justice investigations. We also find that the market reaction is more negative for companies with higher stock price volatility, less effective corporate governance, and lower quality of financial statements. Results suggest that option backdating practices demonstrate weak corporate governance and financial reporting, and regulatory investigations of such practices are value-relevant as reflected in stock prices.

Keywords: Stock option grants; Backdating practices and probes; Market reactions; Corporate governance; Financial reporting (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1052045709000551
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reacre:v:22:y:2010:i:1:p:52-57

DOI: 10.1016/j.racreg.2009.11.004

Access Statistics for this article

Research in Accounting Regulation is currently edited by G. Previts

More articles in Research in Accounting Regulation from Elsevier
Bibliographic data for series maintained by Catherine Liu ().