Options Probes Take a Toll
From the Briefcase: Research produced by America's Best Business Schools
Study: "The Effect of the Options Backdating Scandal on the Stock-Price Performance of 110 Accused Companies"
Authors: Gennaro Bernile (University of Miami School of Business), Gregg Jarrell (Simon Graduate School of Business, University of Rochester), and Howard Mulcahey (Forensic Economics)
Status: Working paper
Summary: Some analysts insist ongoing probes into stock options backdating aren't having any effect on company stock. They are wrong, says a new study.
Investigations into backdated stock options have rocked more than 100 companies in the past two years. Over 50 top execs have been fired. Still, many analysts insist the scandal won't have any lasting effect on stock prices. They are wrong, says a group of researchers from the University of Miami School of Business, the University of Rochester's Simon Graduate School of Business, and Forensic Economics.
In a working paper, "The Effect of the Options Backdating Scandal on the Stock-Price Performance of 110 Accused Companies," the authors find alarming declines in shareholder value at the 110 companies under investigation last fall for backdating. According to their calculations, investors who bought stock in these companies 60 days before their options issues were revealed have seen their investments devalued by more than 25 percent. At a time when the Dow has been hitting all-time highs, the companies under investigation–most with flat-lining share prices–have lost well over $100 billion in potential value.