Taxes and the backdating of stock option exercise dates

Dan Dhaliwal, Merle Erickson, Shane Heitzman

Research output: Contribution to journalArticle

20 Scopus citations

Abstract

We investigate the backdating of stock option exercises. Before SOX, we find evidence that some exercises were backdated to days with low stock prices. Consistent with a tax-based incentive, these suspect exercises are more likely when the personal tax savings from backdating are higher. However, suspect CEO exercises generate average (median) estimated tax savings of $96,000 ($7,000). These savings appear modest relative to the costs insiders and firms face. We find that the likelihood of a suspect exercise increases in the likelihood of option grant backdating. This suggests that agency problems associated with backdating permeate option compensation in some firms.

Original languageEnglish (US)
Pages (from-to)27-49
Number of pages23
JournalJournal of Accounting and Economics
Volume47
Issue number1-2
DOIs
StatePublished - Mar 1 2009

Keywords

  • Backdating
  • Insider trading
  • Regulation
  • Stock option compensation
  • Taxes

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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