Journal backdating

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Thus, if backdating explains the stock price pattern around option grants, the price pattern should diminish following the new regulation.

Indeed, we found that the stock price pattern is much weaker since the new reporting regulation took effect.

Any remaining pattern is concentrated on the couple of days between the reported grant date and the filing date (when backdating still might work), and for longer periods for the minority of grants that violate the two-day reporting requirements.

We interpret these findings as strong evidence that backdating explains most of the price pattern around ESO grants.

However, under the new FAS 123R, the expense is based on the fair market value on the grant date, such that even at-the-money options have to be expensed.) Because backdating is typically not reflected properly in earnings, some companies that have recently admitted to backdating of options have restated earnings for past years. The exercise price affects the basis that is used for estimating both the company's compensation expense for tax purposes and any capital gain for the option recipient.

Thus, an artificially low exercise price might alter the tax payments for both the company and the option recipient.

Further, at-the-money options are considered performance-based compensation, and can therefore be deducted for tax purposes even if executives are paid in excess of

Thus, if backdating explains the stock price pattern around option grants, the price pattern should diminish following the new regulation.Indeed, we found that the stock price pattern is much weaker since the new reporting regulation took effect.Any remaining pattern is concentrated on the couple of days between the reported grant date and the filing date (when backdating still might work), and for longer periods for the minority of grants that violate the two-day reporting requirements.We interpret these findings as strong evidence that backdating explains most of the price pattern around ESO grants.However, under the new FAS 123R, the expense is based on the fair market value on the grant date, such that even at-the-money options have to be expensed.) Because backdating is typically not reflected properly in earnings, some companies that have recently admitted to backdating of options have restated earnings for past years. The exercise price affects the basis that is used for estimating both the company's compensation expense for tax purposes and any capital gain for the option recipient.Thus, an artificially low exercise price might alter the tax payments for both the company and the option recipient.Further, at-the-money options are considered performance-based compensation, and can therefore be deducted for tax purposes even if executives are paid in excess of $1 million (see Section 162(m) of the Internal Revenue Code).

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Thus, if backdating explains the stock price pattern around option grants, the price pattern should diminish following the new regulation.

Indeed, we found that the stock price pattern is much weaker since the new reporting regulation took effect.

Any remaining pattern is concentrated on the couple of days between the reported grant date and the filing date (when backdating still might work), and for longer periods for the minority of grants that violate the two-day reporting requirements.

We interpret these findings as strong evidence that backdating explains most of the price pattern around ESO grants.

However, under the new FAS 123R, the expense is based on the fair market value on the grant date, such that even at-the-money options have to be expensed.) Because backdating is typically not reflected properly in earnings, some companies that have recently admitted to backdating of options have restated earnings for past years. The exercise price affects the basis that is used for estimating both the company's compensation expense for tax purposes and any capital gain for the option recipient.

Thus, an artificially low exercise price might alter the tax payments for both the company and the option recipient.

Further, at-the-money options are considered performance-based compensation, and can therefore be deducted for tax purposes even if executives are paid in excess of $1 million (see Section 162(m) of the Internal Revenue Code).

However, if the options were effectively in-the-money on the decision date, they might not qualify for such tax deductions.

million (see Section 162(m) of the Internal Revenue Code).

However, if the options were effectively in-the-money on the decision date, they might not qualify for such tax deductions.

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Instead, she decided to risk criminal prosecution by blowing the whistle.

For several years, Micrel allowed its employees to choose the lowest price for the stock within 30 days of receiving the options.

After these stock option terms came to the attention of the IRS in 2002, it worked out a secret deal with Micrel that would allow Micrel to escape million in taxes and required the IRS to keep quiet about the option terms.

This pioneering study was published in the Journal of Finance in 1997, and is definitely worth reading.

In a study that I started in 2003 and disseminated in the first half of 2004 and that was published in Management Science in May 2005 (available at I found that stock prices also tend to decrease before the grants.

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