Option Backdating and Board Oversight: Evidence from Firms Interlocked with Backdating Investigation Targets
We examine the role of directors in the option backdating scandal. We show that the initial announcement of a company coming under backdating investigation generates significantly negative abnormal returns to firms director-interlocked with the investigation target. The announcement returns are more negative when interlocking directors sit on the investigation targets compensation committee and less negative when interlocked companies have stronger corporate governance and better management in place. These results suggest that investors hold directors at least partially responsible for backdating, and its revelation prompts the market to discredit involved directors and downgrade the governance quality of other companies they serve. We also find that the negative reaction is not limited to interlocked companies that may have backdated options themselves, which implies that the poor judgment and lax monitoring of interlocking directors may contribute to other agency problems. Consistent with this, we find evidence of excessive CEO compensation and more aggressive earnings management at the interlocked companies.
Veronika Krepely Pool Cong Wang Fei Xie
Indiana University Chinese University of Hong Kong George Mason University
国际会议
广州
英文
1-37
2009-07-07（万方平台首次上网日期，不代表论文的发表时间）