Options Backdating: Accounting, Tax, and Economics

Thu Nov 30 15:24:38 EST 2006
By Dr. Patrick Conroy et al.

Executive compensation in the form of stock options has attracted more than its share of attention over the years, for the profits options provided to tech company moguls before their stocks collapsed and for the impact on earnings of changes to accounting rules. Recently, a practice known as "options backdating" has come under scrutiny by federal investigators, auditors, investors, the media, and the plaintiffs' bar, among others.

To address these matters from an economic perspective, NERA's Securities and Finance Practice has created NERA Insights: Options Backdating Series, a series of papers dedicated to the analysis of options backdating. Part II of the series, "Options Backdating: Accounting, Tax, and Economics," provides an overview of the potential accounting, tax, and economic consequences stemming from the practice of backdating. Included is an updated, detailed table examining the companies that have been alleged to have engaged in potentially improper option-granting practices.

Part I of the series, Options Backdating: A Primer, provides an introduction to the properties of options as a financial instrument and how these properties relate to the practice of backdating. To learn more about NERA Insights: Options Backdating Series, please contact Dr. Conroy.