Option backdating board interlocks

07-Oct-2020 20:39

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We examine the use of four different types of hedging instruments that insiders can use to hedge their ownership in the firm.These instruments include zero cost collars, pre paid variable forwards, exchange funds, and equity swaps.We find that the selection of peers depends to a large degree on firms of similar size in the same industry but that there is substantial variation in the chosen peers across firms.

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Initially, many believed that stock option backdating might have been concentrated in the high tech area.

We find that for collars and forwards insiders hedge a third of their ownership on average and tend to do so before declines in the firms stock price.