Corporate governance and backdating of executive stock options

Finally, we find that CEOs of backdating firms receive a significantly higher level of total compensation than their counterparts in non-backdating firms after controlling for economic determinants of executive pay, and that the predicted excess compensation arising from the board and ownership structure variables has a more negative association with future firm performance for backdating firms relative to non-backdating firms.

The evidence is consistent with backdating firms having greater agency problems that negatively affect shareholder value.

The SEC’s Enforcement Division and the offices of the United States Attorney are investigating the option granting practices of dozens of companies and actions taken by their executives.

What values and norms should guide the board of directors in protecting the shareholders’ interests?

To examine these issues, we first discuss the role values and norms can play with respect to underlying corporate governance and the proper role of directors, such as .

The forced turnover rates for CEOs and CFOs are similar and several times higher than normal.

The displaced managers are further punished by the managerial labor market, as they are much less likely than control firm managers to be rehired at comparable positions.

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Fourth, we proceed to an analysis of good corporate governance practice involving backdating options based on a series of ethical standards including: (1) trustworthiness; (2) utilitarianism; (3) justice; and (4) Kantianism.

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