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

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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.

Document Type: Research Article

DOI: http://dx.doi.org/10.1111/j.1467-629X.2011.00406.x

Affiliations: 1: Department of Business Education, National Changhua University of Education, Changhua 500, Taiwan 2: College of Business Administration and Center for International Studies, University of Missouri-St. Louis, MO 63121, USA 3: Department of Money and Banking, National Chengchi University, Taipei 116, Taiwan

Publication date: June 1, 2012

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