The Effect of the Sarbanes-Oxley Act on the Timing Manipulation of CEO Stock Option Awards

2005 ◽  
Author(s):  
Daniel W. Collins ◽  
Guojin Gong ◽  
Haidan Li
Keyword(s):  
Stock Option ◽  
Sarbanes Oxley

Characteristics of real backdaters

2017 ◽  
Vol 24 (4) ◽  
pp. 541-551
Author(s):  
Kienpin Tee ◽  
Marilyn Wiley
Keyword(s):  
Stock Price ◽  
Market Price ◽  
Stock Option ◽  
Shareholder Wealth ◽  
Operating Efficiency ◽  
Price Risk ◽  
Bankruptcy Risk ◽  
Content Type ◽  
Non Profit ◽  
Sarbanes Oxley

Purpose Recent findings show that CEOs tend to backdate their stock option grants so that a past date on which the stock price was particularly low is picked to be the grant date. Using cases now settled concerning a group of firms that were caught backdating, this paper aims to examine further whether backdating firms have higher levels of operating efficiency and corporate governance, lower levels of bankruptcy risk, more ability to increase shareholder wealth, and lower levels of market price risk. This paper also compares the characteristics of backdating firms during the pre-Sarbanes-Oxley Act of 2002 (SOX) and post-SOX periods. Design/methodology/approach This sample of backdater firms comprises those caught backdating who have settled their cases, according to data provided by Risk Metrics Group, a non-profit organization that keeps track of most securities class actions. A matched sample of 28 non-backdating, comparison-group firms was constructed to perform univariate and multivariate comparisons. Findings This study found that backdating firms on average have a higher price risk than non-backdating firms, and that increasing the percentage of shares owned by the major shareholders reduces the possibility of management conducting backdating activities. Originality/value No previous studies have used a sample of real backdating culprits. Previous studies have usually used likely backdating traits to identify a group of suspected backdaters. In contrast, the current study, by using a group of firms whose deliberate backdating behavior had led to lawsuits that have been settled in court, investigated the characteristics of known backdaters.

scholarly journals Real and Accrual-Based Earnings Management in the Pre- and Post-Sarbanes-Oxley Periods

2008 ◽  
Vol 83 (3) ◽  
pp. 757-787 ◽  
Author(s):  
Daniel A. Cohen ◽  
Aiyesha Dey ◽  
Thomas Z. Lys
Keyword(s):  
Earnings Management ◽  
Stock Option ◽  
Significant Decline ◽  
Real Earnings Management ◽  
Negatively Associated ◽  
Current Period ◽  
Sarbanes Oxley ◽  
Differential Set ◽  
Earnings Benchmarks

We document that accrual-based earnings management increased steadily from 1987 until the passage of the Sarbanes-Oxley Act (SOX) in 2002, followed by a significant decline after the passage of SOX. Conversely, the level of real earnings management activities declined prior to SOX and increased significantly after the passage of SOX, suggesting that firms switched from accrual-based to real earnings management methods after the passage of SOX. We also document that the accrual-based earnings management activities were particularly high in the period immediately preceding SOX. Consistent with these results, we find that firms that just achieved important earnings benchmarks used less accruals and more real earnings management after SOX when compared to similar firms before SOX. In addition, our analysis provides evidence that the increases in accrual-based earnings management in the period preceding SOX were concurrent with increases in equity-based compensation. Our results suggest that stock-option components provide a differential set of incentives with regard to accrual-based earnings management. We document that while new options granted during the current period are negatively associated with income-increasing accrual-based earnings management, unexercised options are positively associated with income-increasing accrual-based earnings management.

Audit Committee Stock Options and Financial Reporting Quality after the Sarbanes-Oxley Act of 2002

2014 ◽  
Vol 34 (2) ◽  
pp. 91-120 ◽  
Author(s):  
John L. Campbell ◽  
James Hansen ◽  
Chad A. Simon ◽  
Jason L. Smith
Keyword(s):  
Financial Reporting ◽  
Audit Committee ◽  
High Growth ◽  
Reporting Quality ◽  
Stock Option ◽  
Mean Value ◽  
Audit Committees ◽  
Financial Reporting Quality ◽  
Equity Incentives ◽  
Sarbanes Oxley

SUMMARY The Sarbanes-Oxley Act (SOX) and its associated regulations significantly expanded the oversight role of audit committees and improved independence, but regulators bypassed restrictions on audit committee equity incentives. We examine the association of audit committee members' equity incentives and financial reporting quality in the post-SOX time period. We find that audit committee members' stock-option awards and holdings are positively associated with the likelihood of meeting/beating analyst earnings forecasts. On average, a company whose audit committee holds the mean value of exercisable option holdings is associated with a 10.0 percent increase in the likelihood of meeting or just beating its consensus analyst forecast. This effect increases to 17.8 percent for companies with high-growth opportunities. These results suggest that—even in the post-SOX era—the stock-option incentives provided to independent audit committee members are associated with reduced financial reporting quality. JEL Classifications: M41, M42

Sarbanes-Oxley: Investment Company Compliance

CFA Digest ◽  
2003 ◽  
Vol 33 (4) ◽  
pp. 3-4
Author(s):  
Spencer L. Klein
Keyword(s):  
Investment Company ◽  
Sarbanes Oxley
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