Backdating business

22-Nov-2020 10:19

option grants to periods of lower share prices (Yermack, 1997; Aboody and Kasznik, 2000; Chauvin and Shenoy, 2001; Lie, 2005; Heron and Lie, 2007; and Narayanan and Seyhun, 2006), or decreasing earnings to suppress share price when options are granted (Baker, Collins, and Reitenga, 2003; Cheng and Warfield, 2005; Bergstresser and Philippon, 2006; Cornett, Marcus, and Tehranian, 2008; Mc Anally, Srivastava, and Weaver, 2008).

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'backdate.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. What It Is In the finance world, backdating usually refers to the practice of changing the dates of option grants to one that is earlier than the actual grant date in order to place a lower exercise price on the options and thus enhance the potential profits from the exercise of those stock options.

The practice sometimes also occurs in the insurance industry, whereby policy issuers make the effective date of a policy (or claim) earlier than the application date in order to obtain a lower premium for the customer (or obtain better claim results).

How It Works For example, let's assume that John Doe is the CEO of Company XYZ.

Stock prices change, however, and there is no guarantee that any stock price will ever be above the exercise price.

Options backdating is the practice of altering the date a stock option was granted, to a usually earlier (but sometimes later) date at which the underlying stock price was lower.

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In essence, the revision enabled companies to increase executive compensation without informing their shareholders if the compensation was in the form of stock options contracts that would only become valuable if the underlying stock price were to increase at a later time.This is a way of repricing options to make them valuable or more valuable when the option "strike price" (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted.