Backdating executive stim validating
Louis are ready to discuss the implications backdating has on corporations and shareholders.
It is believed that dozens, if not hundreds, of companies across the country may have improperly manipulated the dates of stock options grants to coincide with low points in the value of their companies’ shares.
The authors find that CEOs of “fraud firms” have greater option-based compensation, indicating that the greater the incentive for CEOs to maximize the company’s stock price, the greater the incentive the CEO has to engage in fraudulent activities to accomplish this goal.
(The authors also tested whether the option intensity prompted the fraud allegations, but their results held.) Some of you might remember the backdating scandal in the mid-2000s.
AB - We find that the likelihood of forced turnover in the CEO and CFO positions is significantly higher for firms in the aftermath of option backdating than in propensityscore matched control firms.
Finally, we learn the higher turnover extends to the General Counsel.
Many companies found a way to eliminate any risk of losses for their executives by simply changing the date when stock options were granted, typically to an earlier date when the stock price was lower, to make them more valuable.
Backdating itself is not illegal if it is authorized by the board, fully disclosed, and complies with reporting and tax rules. Eric Lie’s research was the first to show evidence that abnormal stock returns (negative before option grants and positive afterward) were due to backdating of option grant dates and was hugely influential in the SEC investigations in the late 2000s.
“Managers don’t intrinsically have the same interest in growing the company as shareholders do; they tend to be more conservative,” Frankel said.
TY - JOURT1 - Executive turnover following option backdating allegations AU - Efendi, Jap AU - Files, Rebecca AU - Ouyang, Bo AU - Swanson, Edward P.
PY - 2013/1Y1 - 2013/1N2 - We find that the likelihood of forced turnover in the CEO and CFO positions is significantly higher for firms in the aftermath of option backdating than in propensityscore matched control firms.
Senator Warren particularly summed it up when she said, “You should resign.
You should give back the money you took while this scam was going on and you should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission.” Early in the hearing Strump sort of took responsibility for the massive fraud perpetrated by Wells Fargo, but he ultimately blamed it on his employees, who he said “did not do the right thing.” Hopefully, this hearing will reignite our conversation about using jail time to hold Wall Street executives accountable when they cause deep, structural harm to the American public’s financial well-being.