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What drives the dating game of executive options exercise? Evidence from Taiwan

Authors


  • Ming-Cheng Wu acknowledges financial support from NSC 97-2410-H-018-007. We thank the anonymous reviewer and Robert Faff (Editor) for helpful comments, Shannon Hilscher and Debra Soled for editorial assistance.

Abstract

Examining Taiwanese firms from 2002 to 2008, this paper investigates the motivations behind backdating the exercising of executive stock options. The probability of suspect exercises (backdating) is positively related to the firm’s stock return, the value of the option, tax savings, institutional ownership and the extent of CEO equity ownership and negatively related to firm-specific risk and the use of Big Four accounting firms. Tax incentives motivate executives to backdate the exercise date, implying that the greater the potential for larger tax savings, the greater the likelihood of backdating. Backdating usually occurs in firms that have heavy ownership by the CEO, have more claims to executive stock options and are not family-run, confirming the presence of the agency cost problem.

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