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Options Backdating Research Compared

In a new study, researchers from Harvard, Cornell and Insead universities examined some 19,000 options grants at about 5,800 companies from 1996 to the end of 2005. They found evidence suggesting that nearly 12 percent, or about 720, of the companies appear to have made at least one options grant that occurred at the lowest price of the month because of manipulation. Still, the new figure is significantly smaller than the estimate that more than 2,000 companies, or 29.2 percent of companies in the study, engaged in backdating to sweeten their executives' pay. That finding, based on a similar data analysis, was released this summer by Randall Herron, an Indiana University finance professor, and ERIK LIE, a University of Iowa finance professor whose research is widely credited with provoking the inquiries into options grants. The study by Professors Herron and Lie found that the abuse was more prevalent in high-technology firms, where an estimated 32 percent of unscheduled grants were backdated; at other firms, an estimated 20 percent were backdated.

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