Backdating study

This is a way of repricing options to make them valuable or more valuable when the option "strike price" (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted.

The increase in the likelihood that a firm begins to backdate stock options that can be explained by having a board member who is interlocked to a previously identified backdating firm is approximately one-third of the unconditional probability of backdating in our sample.The cascading litany of alleged charges is not likely to stop with the Brocade case.Indeed, with more than 80 companies being reviewed by the SEC for potential illegal backdating practices, and one academic study claiming that more than 2,000 companies have engaged in the practice, civil and criminal charges will probably mushroom in the next few months. The purpose of backdating is straightforward: it gives options holders an immediate paper gain, and a real gain once the option is exercised.That promise is considered to be an in-the-money options grant.In-the-money options are different from performance-based compensation in the eyes of the Internal Revenue Service and the Financial Accounting Standards Board.Backdating does not violate shareholder-approved option plans.

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