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BACKDATE UPDATE

May 30, 2006

The AccountingWeb has posted a nice roundup of the executive stock option backdating story.

AFTERNOON UPDATE: The Wall Street Journal continues its coverage with a profile ($link) of Norwegian U of Iowa prof Erik Lie. An excerpt:

He examined options that weren't granted the same date every year and found a striking pattern in which prices fell before the grant date, and rose soon afterward. He also discovered that the stock market as a whole also often rose following option grants at certain companies. "I said, 'look, it's uncanny how good these executives must be at predicting what will happen with future stock prices," he says. He began to wonder "that maybe it wasn't so uncanny."

Calling his hypothesis "novel," he wrote a paper entitled "On the Timing of CEO Stock Option Awards" that suggested that "at least some of the awards are timed retroactively."

"The results are provocative and might cause some investors to cry foul," he wrote. The paper was published a year ago in a journal called "Management Science." He and another researcher, Randall A. Heron, have since completed a forthcoming, follow-up study that looked at a 2002 change in regulatory law that now requires companies to report option grants within 48 hours. The study found that when companies reported options the same day they were granted, there was no pattern of share prices quickly rising. But the pattern continued when companies delayed reporting option grants.

Hmmmm.... So if there was a delay between the option grant and the announcement, prices went up after the grant date; otherwise, no. Funny how much foresight needed hindsight to work.

The WSJ also has coverage ($) of the firing of the general counsel of anti-virus software company McAfee for option-related causes.

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