Timing of CEO Stock Option Grants and Corporate Disclosures: New Evidence from the Post-SOX and Post-Backdating-Scandal Era

Abstract

Extant studies provide two additional explanations other than backdating for the abnormal stock returns around CEO option grants – timing of option grants and timing of corporate disclosures. We examine the effect of the Sarbanes-Oxley Act of 2002 (SOX), the stock option backdating scandal, and the new compensation disclosure rules of 2006 on these opportunistic timing behaviors. We find no evidence of opportunistic timing relative to scheduled option grants in the pre-SOX, post-SOX, and post-Backdating-Scandal periods. However, opportunistic timing behaviors for unscheduled option grants exist in the pre-SOX period and persist in the post-SOX period. In addition, we distinguish timing of option grants from timing of corporate disclosures by categorizing quarterly earnings announcements into fixed and variable dates and find the persistence of both types of timing behaviors. We also analyze option grants to independent directors and find no evidence of timing behaviors in all three sample periods. Overall, our results suggest that SOX does not affect opportunistic timing behaviors related to CEO option grants. However, the backdating scandal combined with the subsequent compensation disclosure rules have deterred these behaviors.