DO SCANDALS TRIGGER GOVERNANCE CHANGES? EVIDENCE FROM OPTION BACKDATING

We examine whether firms charged with backdating option grants make discernible changes to board structure and activity and whether such changes help recoup value losses from the revelation of option backdating. We find that these firms increased board size, reduced duality, and increased board inde...

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Bibliographic Details
Published in:The Journal of financial research 2018-03, Vol.41 (1), p.91-111
Main Authors: Gupta, Atul, Misra, Lalatendu, Shi, Yilun
Format: Article
Language:English
Subjects:
Boards of directors
Corporate governance
Outside directors
Pricing policies
Scandals
Stock options
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Summary:We examine whether firms charged with backdating option grants make discernible changes to board structure and activity and whether such changes help recoup value losses from the revelation of option backdating. We find that these firms increased board size, reduced duality, and increased board independence. In addition, the boards and the compensation committees of these firms experienced significant increases in meeting frequency. We also find that firms in the same sectors that had not been identified as backdating option grants experienced similar changes in board activity and some elements of board structure. Additional analysis reveals that increases in board size, chief excutive officer turnover, and the meeting frequency of the audit committee are related to buy‐and‐hold abnormal returns in the postscandal period.
ISSN:0270-2592
1475-6803
DOI:10.1111/jfir.12140