Taxes and the backdating of stock option exercise dates

Dan Dhaliwal, Merle Erickson and Shane M. Heitzman

Journal of Accounting and Economics, 2009, vol. 47, issue 1-2, pages 27-49

Abstract: 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.

Keywords: Stock; option; compensation; Backdating; Taxes; Insider; trading; Regulation (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:eee:jaecon:v:47:y:2009:i:1-2:p:27-49

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