Working paper
The Effect of the Sarbanes-Oxley Act on the Timing Manipulation of CEO Stock Option Awards
SSRN
11/2005
DOI: 10.2139/ssrn.850564
Abstract
Section 403 of the Sarbanes-Oxley Act accelerates the reporting deadline of executive stock option grants to be within two business days after the grants. This study investigates the effect of Section 403 on the extent of CEO influence over grant date stock prices aimed at enhancing the value of executive stock option awards. Prior studies find that executives affect the exercise price of options by influencing the timing of option awards, manipulating the timing of value-relevant information around option awards, or backdating the award in an attempt to lower the grant date stock price, thereby increasing the value of their options. We find that the accelerated reporting requirement of SOX 403 significantly reduces CEO influence over grant date stock prices in the post-SOX period. Specifically, we find that the accelerated reporting requirement (1) deters the opportunistic granting of unscheduled awards after bad news announcements and reduces, but does not eliminate, the opportunistic granting of unscheduled awards before good news announcements; (2) deters the delaying of good news announcements after scheduled option awards; and (3) greatly reduces the apparent use of backdating of option grants to lower the strike price. Thus, we provide important new evidence on the economic impact of SOX on mitigating executive opportunistic behavior associated with stock option grants
Details
- Title: Subtitle
- The Effect of the Sarbanes-Oxley Act on the Timing Manipulation of CEO Stock Option Awards
- Creators
- Daniel W Collins - University of IowaGuojin Gong - University of IowaHaidan Li - Santa Clara University
- Resource Type
- Working paper
- DOI
- 10.2139/ssrn.850564
- Publisher
- SSRN
- Number of pages
- 39 pages
- Language
- English
- Date posted
- 11/2005
- Academic Unit
- Accounting
- Record Identifier
- 9984963226602771
Metrics
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