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RFS Advance Access originally published online on September 11, 2007
Review of Financial Studies 2008 21(5):1907-1945; doi:10.1093/rfs/hhm044
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Copyright © The Author 2007. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org

The Dating Game: Do Managers Designate Option Grant Dates to Increase their Compensation?

M. P. Narayanan
Ross School of Business, University of Michigan

H. Nejat Seyhun
Ross School of Business, University of Michigan

Address correspondence to M. P. Narayanan, H. Nejat Seyhun, Ross School of Business, University of Michigan, Ann Arbor, MI 48109–1234, USA, or e-mail: mpn{at}umich.edu., nseyhun{at}umich.edu

JEL Classification: G14, G30, G34, G38


  Abstract

We provide evidence of two variants of a dating game that entails picking a grant date ex post, that is, after the board's compensation decision is made: back-dating (picking a date before the board decision date), and forward-dating (waiting after the board decision date to observe the stock price behavior). Consistent with back-dating, we find stock return behavior around the grant date to be positively related to reporting lag. In the promptly reported sample, we find stock return behavior and the pattern of reporting lags consistent with forward-dating. Our calculations show that managers can obtain economically significant benefits by playing the dating game.

We thank Sreedhar Bharath, Sugato Bhattacharyya, Dana Muir, Joel Slemrod, participants in the finance workshop at the University of Michigan, for useful discussions. We also thank the editor, Joel Hasbrouck, for his comments. An earlier version of this article was titled, "Do Managers Influence their Pay? Evidence from Stock Price Reversals Around Executive Option Grants."


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Home page
 REV FINANC STUDHome page
J. Bizjak, M. Lemmon, and R. Whitby
Option Backdating and Board Interlocks
Rev. Financ. Stud., November 1, 2009; 22(11): 4821 - 4847.
[Abstract] [Full Text] [PDF]


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