Working Paper: NBER ID: w12771
Authors: Lucian A. Bebchuk; Yaniv Grinstein; Urs Peyer
Abstract: We study the relation between corporate governance and opportunistic timing of CEO option grants via backdating or otherwise. Our methodology focuses on how grant date prices rank within the price distribution of the grant month. During 1996-2005, about 12% of firms provided one or more lucky grant -- defined as grants given at the lowest price of the month -- due to opportunistic timing. Lucky grants were more likely when the board did not have a majority of independent directors and/or the CEO had longer tenure -- factors associated with increased influence of the CEO on pay-setting. We find no evidence that gains from manipulated grants served as a substitute for compensation paid through other sources; total reported compensation from such sources was higher in firms providing lucky grants. Finally, opportunistic timing has been widespread throughout the economy, with a significant presence in each of the economy's twelve (Fama-French) industries.
Keywords: corporate governance; CEO compensation; option grants; backdating; opportunistic timing
JEL Codes: D23; G32; G38; J33; J44; K22; M14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| lack of independent directors (G34) | likelihood of opportunistic timing of CEO option grants (G14) |
| longer CEO tenure (M12) | likelihood of opportunistic timing of CEO option grants (G14) |
| CEO tenure (M12) | probability of receiving a lucky grant (H27) |
| CEO tenure (for those hired from outside the firm) (M51) | probability of receiving a lucky grant (H27) |
| manipulation of grant dates (G14) | CEO's influence over the board (G34) |
| lucky grants (H81) | additional benefits to executives (M52) |