December 19, 2006
Comments on Stock Back-Dating
Those who do not like Bebchuck's study note that the study does not prove specific wrongdoing, it only suggests that stock option grants cannot be random when the grants are unusually heavily made on low stock price days. The inference is that the options were backdated. There are other possible explanations (spring loading, for example). The backdating explanation is the most likely, however. The most interesting comments come from those who see no real harm (a well known WSJ columnist takes this view). Have shareholders been hurt? No, the real injury is to the federal government. It is a tax scam, reducing the tax bill of either or both of the firm and the executives. Shareholders may financially benefit -- for a while -- until the reputational effects of employing executives who scam the federal government become known. Heck, in Italy the reputation effects of such a scam may even be positive further increasing stock price, hopefully they are still negative in the United States. In any event, studies showing no real effect on stock prices by stock back-dating allegations or scandals in the United States are interesting to say the least.
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