Shareholders
of stock in companies caught up in the backdating
scandal have lost at least $100 billion, by one
measure, since backdating was first covered in The
Wall Street Journal, according to an academic
study released Wednesday. The study measured the
performance of 110 stocks in a Journal database
of companies with backdating problems. The study
measured the stocks’ daily returns versus
the returns that would have been expected based
on the stocks' historical correlation to
the wider market.
Stocks
in the Journal’s database of companies
with backdating problems began losing value after
a May 2005 academic study by Erik Lie at the University
of Iowa first raised the issue. Wednesday’s
study said the stocks, on average, declined more
than 15 percent compared with their expected returns
during the four weeks leading to the Journal’s
first article about backdating, in March 2006.
Investors
anticipated "with remarkable accuracy exactly
which companies would later prove to have deep legal
problems regarding options," the study said.
Options give the recipient a right to buy a stock
at a fixed "strike price," generally set
at the stock’s market price the day of the
grant, and options holders benefit if the stock rises
above the strike price. In the backdating scandal,
executives and directors dated option grants on days
when the stock was at a low, enhancing the potential
benefit. |
