Option backdating board interlocks
John Bizjak, Michael Lemmon and Ryan Whitby Review of Financial Studies, 2009, vol.22, issue 11, 4821-4847 Abstract: We examine the role of board connections in explaining how the controversial practice of backdating employee stock options spread to a large number of firms across a wide range of industries.Each governance structure for a firm is represented by a numerical metric where higher values are interpreted as weaker governance.
In some sense, CGL is the culmination of this research line.
CGL replicates a number of results spread across the extant literature, and add some twists and turns of their own.
The authors do a nice job in the paper of isolating their unique contributions, so I need not repeat any of that here.
Overall, this is a very careful piece of empirical research, and I have no intention of nit-picking the empirical analysis.
The increase in the likelihood that a firm begins to backdate stock options that can be explained by having a board member who is interlocked to a previously identified backdating firm is approximately one-third of the unconditional probability of backdating in our sample.