Andy Puckett, associate professor of finance, along with David Cicero (former assistant professor) and Lee Biggerstaff (finance doctoral student) has written a National Bureau of Economic Research working paper (No. 19261) that was recently featured in the Wall Street Journal online. The paper is under a third round revision at the Journal of Finance and Economics. Read an excerpt from the August 9, 2013 WSJ article by Khadeeja Safdar below:
In a working paper published by the National Bureau of Economic Research, researchers Lee Biggerstaff, David C. Cicero and Andy Puckett tracked CEOs who personally benefited from options backdating and observed the consequences they faced (if any).
The new paper comes after the Wall Street Journal published a series of articles in 2006 about firms that were changing the date of stock options to benefit executives, reporting that some CEOs were collecting millions by landing options when they were most valuable.
Using data from 1992 to 2009 and a sample of nearly 4,000 firms, the researchers classified 249 CEOs as systematic back daters — at least 30% of their options activity and a minimum of two options events occurred on the most favorable day of the month. They included 12 others whose options activity did not meet their criteria, but who were specifically named in an enforcement action or legal settlement for options backdating.
The researchers found that these CEOs managed to get away with their behavior when the stock market was booming, but were more likely to be fired and their companies were more apt to undergo dramatic losses when the market declined. “It’s comforting to find that ethics do matter and in due time, the market properly punishes those exhibiting behavior consistent with suspect ethics,” said Mr. Puckett.
The paper has recently been presented at the University of Lugano in Switzerland, the Financial Management Association European Conference in Luxembourg, and was a semi-finalist for the Best Paper in Corporate Finance award at the 2012 Financial Management Association Conference in Atlanta.
Puckett, Andy, Amber Anand, Paul Irvine, and Kumar Venkataraman, “Institutional Trading and Stock Resiliency: Evidence from the 2007-2009 Financial Crisis,” Journal of Financial Economics 108(3), 2013, 773-797.
Puckett, Andy, Amber Anand, Paul Irvine, and Kumar Venkataraman, “Performance of Institutional Trading Desks: An Analysis of Persistence in Trading Costs,” Review of Financial Studies 25(2), 2012, 557-598.
Puckett, Andy, Paul Irvine, and Michael Goldstein, “Purchasing IPOs with Commissions,” Journal of Financial and Quantitative Analysis 46 (5), 2011, 1193-1225. (Lead Article)
Puckett, Andy and Sterling Yan, “The Interim Trading Skill of Institutional Investors,” Journal of Finance 66, 2011, pp. 601-633.
Puckett, Andy, Moser, Bill, and Kaye Newberry, “Bank Debt Covenants and Firms’ Responses to FAS 150 Liability Recognition: Evidence from Trust Preferred Stock,” Review of Accounting Studies 16, 2011, pp. 355-376.