The Impact of the Options Backdating Scandal on Shareholders

By Gennaro Bernile, G. Jarrell. 2009

115 citations recorded by the source corpus.

The revelation that scores of firms engaged in the illegal manipulation of stock options' grant dates (i.e. "backdating") captured much public attention. The evidence indicates that the consequences stemming from management misconduct and misrepresentation are of first-order importance in this context as shareholders of firms accused of backdating experience large negative, statistically significant abnormal returns. Furthermore, shareholders' losses are directly related to firms' likely culpability and the magnitude of the resulting restatements, despite the limited cash flow implications. And, tellingly, the losses are attenuated when tainted management of less successful firms is more likely to be replaced and relatively many firms become takeover targets.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/efc69bbdd7abeffbb83112404028c2f797502ae9

How researchers see this paper

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In Accounting

1. Yonca Ertimur
2. F. Ferri
3. David A. Maber
4. Rebecca Files

In Finance

1. David A. Maber
2. Rebecca Files
3. F. Ferri
4. Yonca Ertimur

Citations in the corpus

• SEC Enforcement: Does Forthright Disclosure and Cooperation Really Matter? (2012, background): “Bernile and Jarrell (2009) report that 89 percent of firms implicated in the option backdating scandal conduct an internal investigation into the matter, with the cost of these investigations reaching as high as $70 million (Mercury Interactive) and 27,000 person-hours (Apple Computer).”
• Corporate governance and the profitability of insider trading (2016, unknown): “This measure has been used in several papers including Aggarwal et al. (2009), Bernile and Jarrell (2009), Chung et al. (2010) and Chung and Zhang (2011).”
• Reputation Penalties for Poor Monitoring of Executive Pay: Evidence from Option Backdating (2012, methodology): “As a benchmark, Bernile and Jarrell (2009) examine a sample of 129 BD firms identified by the WSJ as of December 31, 2006.”