Backdating executive stock options--An ex ante valuation

Hans Marius Eikseth and Snorre Lindset

Journal of Economic Dynamics and Control, 2011, vol. 35, issue 10, 1731-1743

Abstract: When backdating executive stock options (ESOs), the exercise price is set in favor of the recipient executive. Relative to a non-backdated benchmark, we find an (ex ante) upper bound for the cost of backdating to shrink from 10% to about 3.7%, as a consequence of the regime change represented by the Sarbanes-Oxley act (SOX). We frame the backdating behavior as a (compound) exotic option, considering both simple and extended models of the underlying ESO--in the latter case we draw on the analytical ESO models of Sircar and Xiong (2007). Post-SOX, we use a Longstaff-Schwartz inspired least squares Monte Carlo approach.

Keywords: Backdating; of; executive; stock; options; Exotic; lookback; options; SOX (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:35:y:2011:i:10:p:1731-1743

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