Sarbanes-Oxley has been less effective in putting a halt to stock-option manipulation than regulators originally hoped, according to research from the University of Michigan's Ross School of Business
A new study by finance professors M.P. Narayanan and H. Nejat Seyhun suggests that although the prompt-disclosure requirement imposed by the Sarbanes-Oxley Act of 2002 (SOX) has partly curtailed managerial influencing of grant day stock prices by executives seeking to increase the value of their option grants, such activities still occur.
"Backdating of grant dates and camouflaged timing appear to be practiced even after SOX, especially by smaller firms," Narayanan said. "In order to further restrict this behavior, the Securities and Exchange Commission needs to enforce the SOX two-day reporting rule and, if possible, limit the use of unscheduled option grants to legitimate purposes only."
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