Evidence of share option backdating in the JSE Top 40 since 2001

Abstract

This study investigates whether executives backdate share option grant dates to their advantage in South Africa. Using data for 175 options granted to executives of the JSE top 40 companies between 2001 and 2006, a pattern of negative cumulative abnormal share returns before the grant dates but positive and increasing returns thereafter is observed. This pattern is far more pronounced for unscheduled grants than scheduled grants. Statistical testing shows that the mean cumulative abnormal returns are significantly different from zero after the grant date, but are not significantly different from zero before the grant date. The mean differences between pre- and post-grant period average cumulative abnormal share returns are significantly different. These results suggest that there is statistical evidence that opportunistic behaviour around executive option grants, including backdating, took place.