Stock option backdating wall street journal
For the first news event (typically the announcement of an internal investigation by the firm), we find a statistically significant excess return of about -4.50% in the -20 to -2 window and -2.40% in the -1 to 1 window.The magnitude of the implied wealth changes seems too large to be attributed to any reasonable estimate of direct out-of-pocket costs of the backdating scandal or to the resulting legal penalties disclosed to date (direct cost hypothesis).To try to answer some questions about what's going on, CNET has compiled the following list of frequently asked questions. Backdating, which refers to the practice of altering the dates of grants, is a way for employees of a company to make additional money from stock options.While it's not necessarily illegal, in many cases it could be. The Securities and Exchange Commission said last week that at least 80 companies are the subject of a probe.Our analysis focuses on 129 firms identified by the Wall Street Journal as implicated in the backdating scandal as of December 31, 2006.
If you have a coupon to buy a Ferrari for 0,000, and the market price of the car is 0,000, your coupon is worth ,000.
Therefore, the alternative hypothesis we propose, which we broadly label Agency Hypothesis, is that a firm’s involvement in the backdating scandal has significant economic implications, despite its limited (direct) impact on cash flows.