Define backdating options
An example illustrates the potential benefit of backdating to the recipient.
This made me think about the possibility that some of the grants had been backdated.
To the extent that companies comply with this new regulation, backdating should be greatly curbed.
Thus, if backdating explains the stock price pattern around option grants, the price pattern should diminish following the new regulation.
In a second study forthcoming in the Journal of Financial Economics (available at Randy Heron of Indiana University and I examined the stock price pattern around ESO grants before and after a new SEC requirement in August of 2002 that option grants must be reported within two business days.
The graph below shows the dramatic effect of this new requirement on the lag between the grant and filing dates.