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Our event study of stock market reactions to the initial disclosure of backdating investigations shows that those reactions declined over our sample period.We also find that later backdating investigations are less likely to target individuals and less likely to be accompanied by a parallel criminal investigation.
Companies generally use stock options as an incentive to the employees.
Executive stock options continue to grab headlines.
In late 2004, after a parade of protests, the Financial Accounting Standards Board (FASB) issued the "Summary of Statement No. Intending to promote transparency, FASB's rule requires public companies "to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award" and to recognize the cost "over the period during which an employee is required to provide service in exchange for the award-the requisite service period (usually the vesting period)." Following suit, on July 26, 2006, the U. Securities and Exchange Commission (SEC) announced news about additional (and arguably more comprehensive) disclosure rules for all sorts of executive compensation vehicles, including stock options.
Companies sometimes give their employees the right to buy shares at a fixed price for a number of years while they are with the company.
Since you will only make money if the stock prices go up, your profits increase if the price at which you are allowed to purchase the stock is very low, and the stock price subsequently rises.