Application of Current Stock Option Backdating Methodologies Can Be Misleading, According to New NERA Economic Consulting Paper

08 March 2007

New York (March 8, 2007) -- Using currently available academic studies on options timing to draw conclusions about specific companies can be misleading, according to the NERA Economic Consulting white paper released today, "Options Backdating: The Statistics of Luck."

According to co-authors NERA consultants, Dr. Renzo Comolli, Dr. Branko Jovanovic, and Dr. Patrick Conroy, current academic studies on backdating use methodologies designed to detect aggregate patterns, rather than analyze specific companies. No published study to date has addressed the likelihood of option grants of specific companies. Because of this, the studies do not disentangle legal from illegal practices, according to the authors.

The NERA paper also examines many misconceptions currently circulating about the statistical calculations that have been used in connection with backdating -- including some used in the March 18, 2006 Wall Street Journal article, "The Perfect Payday."

Among other findings, the authors show that:

  • Some grant patterns that may at first appear extremely unlikely are actually likely
  • The Wall Street Journal article did not account for the vast number of directors and officers (D&O) in the US who receive options grants. With such a large number of D&O, it is a near certainty that some of them would receive most of their grants on days when the stock price was particularly low, even in absence of any illegal practices
  • Factors that were disregarded in published probability calculations may be especially important when estimating the likelihood of option grants for specific companies

NERA Economic Consulting (, founded in 1961 as National Economic Research Associates, is a unit of Mercer Specialty Consulting, an MMC company.


About NERA

NERA Economic Consulting ( is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For more than six decades, we have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. We bring academic rigor, objectivity, and real-world industry experience to issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA’s clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world’s largest economic consultancies. Continuing our legacy as the first international economic consultancy, NERA serves clients from major cities across North America, Europe, and Asia Pacific.