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BACKDATING AND DIRECTOR INCENTIVES: MONEY OR REPUTATION?
Author(s) -
Minnick Kristina,
Zhao Mengxin
Publication year - 2009
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2009.01257.x
Subject(s) - stock options , incentive , reputation , shareholder , business , non qualified stock option , executive compensation , compensation (psychology) , stock (firearms) , finance , actuarial science , accounting , corporate governance , restricted stock , economics , stock market , microeconomics , mechanical engineering , psychology , paleontology , social science , horse , sociology , psychoanalysis , engineering , biology
We investigate how director incentives affect the occurrence of firms' backdating employee stock options. Directors with more wealth tied up in stock options may pursue activities that lead to personal gain, such as option backdating, which potentially increases the option recipient's compensation. We document a positive and significant association between director option compensation and the likelihood that firms backdate stock options. Our results question the effectiveness of director option compensation in aligning the interests with those of shareholders and help to explain the recent decline in the use of director option grants by many firms.