Erik lie backdating study
Backdating has been called "cheating the corporation in order to give the CEO more money than was authorized." and a way of "rewarding managers when stock prices fall".
According to a study by Erik Lie, a finance professor at the University of Iowa, more than 2,000 companies used options backdating in some form to reward their senior executives between 19.
Also see: 5 things to know about the Panama Papers In a written response to questions from ICIJ and its media partners, the firm said that backdating documents “is a well-founded and accepted practice” that is “common in our industry and its aim is not to cover up or hide unlawful acts.” Erik Lie, a finance professor at the University of Iowa, published an initial study in 2005 and then another in July 2006 that said more than 2,000 companies had used options backdating between 19 to reward senior executives.
Backdating allowed executives to choose a past date when the market price was particularly low, thereby inflating the value of the options.
Backdating can involve assigning an event “to a date prior to that of actual occurrence” or dating a document “to reflect an event that occurred prior to execution.” The propriety of backdating, says law professor Jeffrey L.
Kwall of Loyola University of Chicago’s law school, depends largely on which of the two actions has occurred.
It allegedly failed to inform investors, or account for the options expense(s) properly.
Corporations, however, have defended the practice of stock option backdating with their legal right to issue options that are already in the money as they see fit, as well as the frequent occurrence in which a lengthy approval process is required.The process was illegal in many cases because documents were forged, the options were not properly accounted for, and the backdating was not clearly communicated to the company’s shareholders.The Securities and Enforcement Commission and the Department of Justice eventually caught hundreds of companies and individual executives illegally backdating between 20.Cases of backdating employee stock options have drawn public and media attention.While options backdating is not always illegal, many options in corporations are granted to upper management.