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This pioneering study was published in the Journal of Finance in 1997, and is definitely worth reading.

In a study that I started in 2003 and disseminated in the first half of 2004 and that was published in Management Science in May 2005 (available at I found that stock prices also tend to decrease before the grants.

The graph below shows the dramatic effect of this new requirement on the lag between the grant and filing dates.

To the extent that companies comply with this new regulation, backdating should be greatly curbed.

sec stock option backdating-54sec stock option backdating-34

Because the option value is higher if the exercise price is lower, executives prefer to be granted options when the stock price is at its lowest.

There is also some relatively early anecdotal evidence of backdating.

A particularly interesting example is that of Micrel Inc.

Unfortunately, these conditions are rarely met, making backdating of grants illegal in most cases.

(In fact, it can be argued that if these conditions hold, there is little reason to backdating options, because the firm can simply grant in-the-money options instead.)David Yermack of NYU was the first researcher to document some peculiar stock price patterns around ESO grants.

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