Yaniv Grinstein, Urs Peyer and I just issued a discussion paper, Lucky CEOs, on option backdating and corporate governance. The study has been covered in the Wall Street Journal, New York Times, Washington Post, Financial Times, and Boston Globe. We are continuing to work on the subject so any comments or reactions would be most welcome. Our abstract describes the paper as follows:

We study the relation between corporate governance and opportunistic option grant manipulation. Our methodology for studying grant manipulation focuses on how grant date prices rank within the price distribution of the grant month. Investigating the incidence of “lucky grants” — defined as grants given at the lowest price of the month – we estimate that about 1150 lucky grants resulted from manipulation and that 12% of firms provided one or more lucky grant due to manipulation during the period 1996-2005. Examining the circumstances and consequences of lucky grants we find:

– Lucky grants were more likely when the company did not have a majority of independent directors on the board and/or the CEO had longer tenure — factors that are both associated with increased influence of the CEO on pay-setting and board decision-making.

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