The economic rationale for option backdating: incentive explanations
Abstract
Purpose
The purpose of this paper is to provide evidence in support of incentive and retention-based explanations for backdating.
Design/methodology/approach
The authors use matching-firm techniques and the bivariate logistic model.
Findings
Backdating firms tend to be younger and faster growing – the characteristics of firms with growing demand for skilled labor. Further, rather than experiencing poor performance, backdating firms tend to outperform matching firms in both prior- and post-backdating years.
Originality/value
The results suggest that backdating reflects a firm's demand for valuable employees rather than strictly a manifestation of agency problems, as evidenced by previous study.
Keywords
Acknowledgements
The authors thank Gene Lai, John R. Nofsinger, Donna L. Paul, Richard W. Sias and Harry Turtle for their helpful comments at the internal seminar in Washington State University in 2010. The authors also thank Philip H. Dybvig, Jun Liu and Mark Loewenstein for their suggestions at the 2011 internal seminar at the Institutional of Financial Studies, Southwestern University of Finance and Economics.
Citation
Fang, H. and Whidbee, D. (2013), "The economic rationale for option backdating: incentive explanations", Managerial Finance, Vol. 39 No. 11, pp. 1004-1031. https://doi.org/10.1108/MF-12-2012-0248
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited