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Do Scandals Trigger Governance Changes? Evidence From Option Backdating

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  • Atul Gupta
  • Lalatendu Misra
  • Yilun Shi

Abstract

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.

Suggested Citation

  • Atul Gupta & Lalatendu Misra & Yilun Shi, 2018. "Do Scandals Trigger Governance Changes? Evidence From Option Backdating," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 41(1), pages 91-111, March.
    • Handle: RePEc:bla:jfnres:v:41:y:2018:i:1:p:91-111
    DOI: 10.1111/jfir.12140
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    Cited by:

    1. Hsu, Ching-Yu & Chen, Sheng-Syan & Huang, Chia-Wei, 2021. "Board independence and PIPE offerings," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 478-500.
    2. Ongsakul, Viput & Chatjuthamard, Pattanaporn & Jiraporn, Pornsit & Chaivisuttangkun, Sirithida, 2021. "Corporate integrity and hostile takeover threats: Evidence from machine learning and “CEO luck”," Journal of Behavioral and Experimental Finance, Elsevier, vol. 32(C).
    3. Atul Gupta & Kristina Minnick, 2022. "Social capital and managerial opportunism: Evidence from option backdating," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 45(3), pages 579-605, September.
    4. Melissa B. Frye & Duong T. Pham, 2020. "Economic Policy Uncertainty And Board Monitoring: Evidence From Ceo Turnovers," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(3), pages 675-703, August.

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