The economic rationale for option backdating: incentive explanations

– The purpose of this paper is to provide evidence in support of incentive and retention-based explanations for backdating.

– The authors use matching-firm techniques and the bivariate logistic model.

– Backdating firms tend to be younger and faster growing – the characteristics of firms with growing demand for skilled labor. Further, rather than experiencing poor performance, backdating firms tend to outperform matching firms in both prior- and post-backdating years.

– The results suggest that backdating reflects a firm's demand for valuable employees rather than strictly a manifestation of agency problems, as evidenced by previous study.