Option Backdating and Board Interlocks

Bizjak, John M.; Lemmon, Michael L.; Whitby, Ryan J.

doi:10.2139/ssrn.946787

Cited by 121 publications

(137 citation statements)

References 30 publications

(47 reference statements)

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“…Sah (1991) points out that exposure to the dishonesty of others could lead managers to change their subjective estimate of manipulation costs and benefits. There is evidence that having board members who are interlocked to a backdating company increases the chance that the firm also backdates employee stock options (Bizjak et al 2009). Fich and Shivdasani (2007) find that firms are more likely to face a financial lawsuit if they have a board member who sits on the board of another firm that has previously been sued for fraud.…”

Section: Prior Research and Backgroundmentioning

confidence: 99%

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Board Interlocks and Earnings Management Contagion

2010

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We examine whether earnings management spreads from firm to firm via board connections. We find that contagion of accounting quality occurs via directors in interlocking boards with other firms. A firm with director links to firms that restated earnings tends to have poorer accounting quality and higher likelihood of restating its own financial reports. A firm with director links to firms that did not restate earnings tends to have higher accounting quality. This evidence supports the idea that economic behavior such as accruals management spreads through social networks.

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Section: Prior Research and Backgroundmentioning

confidence: 99%

“…On the empirical side, recent research has documented that several types of corporate behaviors such as compensation practices, poison pill adoption, and stock exchange listing decisions spread through networks of interlocking boards (see Teoh 2003, 2009;Bizjak et al 2009;Rao et al 2000;Davis 1991etc. ).…”

Section: Introductionmentioning

confidence: 99%

Board Interlocks and Earnings Management Contagion

2010

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“…Bebchuk, Grinstein, and Peyer (2006) show that CEOs are more likely to get grants at monthly lows when the board does not have a majority of independent directors. Bizjak, Lemmon, and Whitby (2006) report that executives are more likely to receive opportunistically timed grants when the firm's directors serve on the board of another company that was earlier involved in opportunistic timing of executive grants. 9 See Byrd and Hickman (1992), Shivdasani (1993), Brickley, Coles, and Terry (1994), Cotter, Shivdasani, andZenner (1997), Dann, Del Guercio, andPartch (2003), Gillette, Noe, and Rebello (2003), Weisbach (1987), Core, Holthausen, and Larcker (1999), Chhaochharia and Grinstein (2006b), Beasely (1996, and Dechow, Sloan and Sweeny (1996).…”

Section: Introductionmentioning

confidence: 99%

Lucky Directors

Bebchuk¹,

Grinstein²,

Peyer³

2006

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While prior empirical work and much public attention have focused on the opportunistic timing of executives' grants, we provide in this paper evidence that outside directors' option grants have also been favorably timed to an extent that cannot be fully explained by sheer luck. Examining events in which public firms granted options to outside directors during 1996-2005, we find that 9% were "lucky grant events" falling on days with a stock price equal to a monthly low. We estimate that about 800 lucky grant events owed their status to opportunistic timing, and that about 460 firms and 1400 outside directors were associated with grant events produced by such timing. There is evidence that the opportunistic timing of director grant events has been to a substantial extent the product of backdating and not merely spring-loading based on private information. We find that directors' luck has been correlated with executives' luck. Furthermore, grant events were more likely to be lucky when the firm had more entrenching provisions protecting insiders from the risk of removal, as well as when the board did not have a majority of independent directors.

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“…However, researchers could also find that director embeddedness leads to the formation of an economic elite (Allen 1974) that might not act in the interest of the firm anymore but rather optimizes its own interests. Through their embeddedness, directors learn to overcome their inhibitions for criminal behavior such as the backdating of options in executive compensation schemes (Bizjak et al 2009). Generally, the effect of director embeddedness on firm level outcomes is still unclear.…”

Section: Literature Overview Theoretical Background and Hypothesesmentioning

confidence: 99%

Beyond human capital explanations for the gender pay gap among executives: investigating board embeddedness effects on discrimination

Oehmichen

Sarry

Wolff

2014

Bus Res

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This paper examines the gender pay gap in top management teams and how it is affected by directors’ embeddedness. We can reconfirm the result of previous studies that differences in managerial compensation between women and men exist, even after controlling for company properties and human capital attributes. Drawing on the language theory of discrimination, we then question how the embeddedness of directors—the actual deciders on executive compensation levels—affects the pay gap: embeddedness causing homophilous behavior resulting in a higher pay gap or directors using their network as knowledge source and decreasing the pay gap. We find evidence that knowledge effects outweigh potential homophily effects.

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Option Backdating and Board Interlocks

Cited by 121 publications

References 30 publications

Board Interlocks and Earnings Management Contagion

Board Interlocks and Earnings Management Contagion

Lucky Directors

Beyond human capital explanations for the gender pay gap among executives: investigating board embeddedness effects on discrimination

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