Debt Free News

Study shows back-dating debacle caused stock losses of $100 billion

December 20, 2006

In the day and age when finance and investments are extremely important, it is a struggle for many of us that are striving for the debt free lives we all want, it is a travesty to see that many US companies have engaged in stock option back-dating legalities.

A newly released academic study that came out this morning, states that stock owners who possessed stock in companies that were involved in the back-dating stock scandal have lost the minimum of $100 billion collectively. This was according to one of the new study’s measures.

In the study, there were one hundred ten stocks that had their performance looked into. These stocks were retrieved from a Journal data bases that contained their information.
The stock study took assessment of the stock's returns on each day as compared to the returns that would have been expected against stock’s past performance regarding the larger stock market.
A man by the name of Erik Lie, who was from the Univ. Of Iowa, first reported this issue in his 2005 academic study that took place in May of that year. After that 2005 study was released, stocks in the Journal's cache of companies with back-dating problems started a slippery slope in worth. The study that was announced today reported that the same stocks, on a typical level, slid more than fifteen percent in value as opposed to their would-be returns during the 28 days that lead up to the Journal's premiere article about back-dating. That report was released on March of this year.
As far as investor anticipation goes, the report says that investors figured, with great detail in guesswork, as to which companies would end up in some sort of legal issues with stock options in the future.
Stock options provide the receiver with the opportunity to purchase a stock fro a fixed cost. These such rates typically are set at the market’s current cost that actual day they are bought. So, if the stock’s price should gain, they make a profit accordingly.

As far as the scandal for the back-dating is concerned, it is stated that upper management types such as company execs and directors dated the purchase dates on days when the stock market valued the stock s a low prices. This, in turn, made them have a much better chance at making big time money and larger profits.
Today’s study was created by Univ. of Miami’s Gennaro Bernile. He collaborated with Gregg Jarrell, who was a previous chief economist of the SEC as well as the fact that he taught at the Univ. of Rochester. Another man involved in the study released today was and Howard Mulcahey. Malcahey is the current VP an economics and finance consulting firm also located in Rochester, New York.

As of as late as yesterday, we found more than one hundred ninety companies that have reported internal (and even federal) investigations into some sort of back-dating stock option problems. In fact, the AP show cases an even longer list of companies that are having or had back-dating stock options problems. Because of the lengthy lists involved, it is being widely reported that the total losses are at that staggering one hundred million range.

This is just one reason it is important that companies need to be better tracked in these areas. When these types of problems trigger a huge deficit like this one has, companies need to be watched more carefully. Stock options are great part of any salary and company vesting, but when done improperly, no one wins in the end.

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