Option Backdating : Market Overreaction and Management Motives

Prior studies on option backdating have focused exclusively on the initial backdating investigation announcements. We extend the analyses to consider the outcomes of the investigation as well. By examining the market responses both to the initial investigation announcement and to the investigation outcome, we provide an evidence that the market may have overreacted to the initial investigation announcement. Our results also show that the media bias in covering more bad than good news may have contributed to the overreaction. Finally, we re-examine the issue of management motives, focusing on firms which were found to be guilty of intentional backdating. No prior study has addressed the motive issues with the sample of “true” backdators before