Backdating of CEO Stock Option Grants and Timing of Earnings Disclosures

Extant studies provide two competing explanations for the abnormal stock return patterns around CEO option grants: the backdating of option grants and the timing of news disclosure. We examine the interrelation between backdating, good-timing, and the regulatory effect on such opportunistic behaviors. Using the CEO option grant sample for S&P1500 firms from the Thomson Financial Insider Filing and IRRC Directors databases between 1996 and 2005, we find that (1) backdating is more prevalent for firms filing Form 5 than for firms filing Form 4; (2) while the Sarbanes-Oxley Act (SOX) curtailed backdating, the good-timing of earnings disclosures as an alternative device has persisted and increased post-SOX; and (3) the reporting lag between the grant date and the SEC filing date is an indicator of good-timing rather than backdating post-SOX. Overall, our evidence suggests that despite the tightened oversight represented by SOX, CEOs continue to manipulate the timing of earnings disclosures to increase the value of their equity compensation