Consequences of backdating stock options platonic dating london
This problem occurs most often when boards or committees act by unanimous written consent but there is a delay in the receipt of all of the signed consents.
Even though no documents are backdated and there may be no intent to select a lower exercise price, backdating issues may arise if the stock price increases before the corporate formalities have been completed.
If the compensation expense is not properly reflected in earnings, the company’s financial statements will be inaccurate and restatement of the financials may be required.
The discovery of past backdating practices may raise issues as to the adequacy of the company’s internal controls and disclosure controls and procedures.
Option grants to new employees have their own set of backdating issues.
We thank Thomas Lys (the Editor) and an anonymous referee for helping us improve the paper.
The stock plans of many public companies prohibit the granting of below-market options; other companies disclose in their SEC reports that stock options are granted at market and prepare their financial statements on that basis.
The term “backdating” refers to a number of option granting practices in which the reported grant date is different from the date on which the option is actually awarded, resulting in an option that is already “in-the-money” at the time of the grant.
We are also grateful to Sandro Andrade, Jennifer Carpenter, Jay Emerson, Doug Emery, Yaniv Grinstein, Shane Heitzman, Xi Li, Evgeny Lyandes, Howard Mulcahey, Robert Neal, Katherine Schipper, Douglas Skinner, Jerry Zimmermann, seminar participants at the University of Miami and the Securities & Exchange Commission (SEC), and participants of the 2007 Journal of Accounting & Economics Conference and the Western Finance Association 2008 Meetings for their comments and suggestions; and to Hernan Awad for his invaluable help in designing the Monte-Carlo simulations used to compute the grant dates’ odds.
Finally, we gratefully acknowledge the special efforts and contributions in support of this study by Michael Schwert, Duke University, and Erin Redoutey and Raul Izquierdo, Univeristy of Miami.
Before FAS 123R, generally only options granted below fair market value resulted in any compensation expense.