Discussion of “The Impact of the Options Backdating Scandal on Shareholders” and “Taxes and the Backdating of Stock Option Exercise Dates”

Discussion of “The Impact of the Options Backdating Scandal on Shareholders” and “Taxes and the Backdating of Stock Option Exercise Dates”

By
Christopher S. Armstrong, David F. Larcker
Journal of Accounting and Economics. March
2009, Vol. 47, Issue 1–2, Pages 50–58

Bernile and Jarrell provide extensive analysis regarding the impact of backdating the stock option exerciseprice on stock returns for a sample of firms identified by the Wall Street Journal. Dhaliwal, Erickson, and Heitzman investigate whether executives backdate the exercise date to obtain favorable tax consequences. This discussion comment focuses on several fundamental issues that confront researchers examining the backdating scandal and other related decisions. Specifically, we discuss the decision models for executives engaged in backdating and the potential role of social networks among directors, selection considerations, institutional voting behavior, and how backdated options can be replicated with existing equity instruments.