Options backdating scorecard
Implications Why do shareholder class actions that allege options backdating appear to settle for less than comparable non-backdating cases?
One possibility is that shareholder suits with backdating allegations are perceived as weaker on the merits than other class actions. The authors would like to thank Jori Visokomogilska, Stefan Boettrich, and Sheena Siu for research assistance, and David Tabak, Marcia Mayer, Stephanie Lee, Pat Conroy, Raymund Wong, Erik Stettler, Kevin La Croix, and Adam Savettfor valuable comments and suggestions.
As noted above, the Newpark Resources, Inc., settlement encompassed allegations in addition to backdating .All eight of the companies in Table 1 were the subject of at least one official inquiry or investigation, and four—Rambus, Inc., Mercury Interactive Corp., KLA-Tencor Corp., and Wireless Facilities, Inc.—admitted to accounting irregularities in connection with options backdating.We conducted a formal test to determine whether a backdating variable, added to NERA's existing predicted settlement model, was statistically significant.We added the eight settlements listed in Table 1 to our model estimation sample and introduced an "indicator" variable that takes a value of one if a settled case involved backdating allegations, and zero otherwise.The backdating indicator variable is estimated to be negative and statistically significant at the 1% level.