Corporate Governance and Backdating of Executive Stock Options*

Layoffs and Chief Executive Officer (CEO) Compensation: Does CEO Power Influence the Relationship?

“…This broader perspective sheds light on the question of whether adjustments to CEO compensation during major events reflect efficient contracting or opporhmistic behavior by CEOs (Bushman & Smith [2001]). Our findings add to a growing line of work documenting CEO power as an important determinant of compensation (e.g.. Core, Holthausen, & Larcker [1999]; Grinstein & m b a r [2004]; Bebchuk, Cremers, & Peyer [2009] ;Collins, Gong, & Li [2009]). Finally, by relying on a continuous measure that reflects the magnitude of the layoff, our analysis yields coefficient estimates that reflect the responsiveness to layoff intensity rather than documenting the existence of a response as in Hallock (1998) and Brookman, Chang, and Rennie (2007b).…”

“…In contrast, Anderson and Bizjak (2003) do not find an association between compensation committee independence and CEO pay. Collins, Gong, and Li (2009) show that option backdating is more likely in firms with weaker corporate governance. In the context of mergers and acquisitions (M&A), Grinstein and Hribar (2004) find that a large portion of the variation in bonuses is related to managerial power, and that M&A announcement returns are essentially zero except for the significantly negative abnormal returns of those transactions led by the most powerful CEO group.…”

Abnormal Audit Fees and Restatements

“…For example, various empirical studies have investigated the influence of earnings management (Ettredge et al 2010;Callan et al 2008;Choi et al 2010), CEO compensation (Efendi et al 2007), CFO characteristics (Aier et al 2005), audit committee characteristics (Abbott et al 2004), internal errors or ambiguous accounting standards (Plumlee and Yohn 2010), auditor industry expertise (Romanus et al 2008), and nonaudit-fees (Bloomfield and Shackman 2008;Kinney et al 2004;Raghunandan et al 2003) on the likelihood of a restatement. Research into the consequences of restatements has largely focused on evaluating the market or analyst responses (Barniv and Cao 2009;Akhigbe and Madura 2008;Griffin et al 2004;Hribar and Jenkins 2004;Griffin 2003), the effect on executive turnover or reputation (Leone and Liu 2010;Feldmann et al 2009;Collins et al 2009;Cheng and Farber 2008;Hennes et al 2008;Desai et al 2006), the likelihood of future litigation , or other effects on corporate governance (Srinivasan 2005). Considering audit fees in the context of restatement research creates a unique intersection of these two research streams: audit fees both influence the likelihood of a restatement (i.e., have a causal influence) and are potentially affected by restatements (i.e., represent a consequence).…”

Evidence for the Existence of Downward Real-Activity Earnings Management

“…Those studies broadly fall into two categories. First, managers time or backdate options to directly lower exercise prices (e.g., Collins, Gong, & Li, 2009;Heron & Lie, 2007;Yermack, 1997); second, managers intervene in financial reporting or information disclosure to indirectly influence the exercise prices (e.g., Aboody & Kasznik, 2000;Baker et al, 2003Baker et al, , 2009McAnally et al, 2008). Both forms of manipulation increase the fair value of options.…”