Is backdating executive stock options always costly to shareholders?

摘要

We use a binomial model to investigate the cost to shareholders of backdating employee stock option (ESO) grants to award in-the-money rather than at-the-money options to a manager. When the expected return of the stock underlying an ESO is sufficiently close to the risk-free rate, a backdating arrangement can always be structured to simultaneously improve shareholders' wealth and the manager's utility. The smaller the manager's non-option wealth, personal income tax rate or risk tolerance, the more likely a backdating arrangement can be welfare improving.