The market yawns over backdating

In my debate with Vic Fleischer and Matt Bodie about backdating, one of my central claims, along with Geoff Manne, is that the market had looked through the accounting and wasn't fooled. Fleischer and Bodie also made various arguments about how the backdating involved immoral conduct, or signaled serious management problems. I've been skeptical.

My skepticism got healthier with this NYT story (HT WSJ Law Blog). Apparently plaintiffs' lawyers are bringing derivative suits in backdating cases rather than class actions, in part because they can't find any market damages. Says Lattman:

The outcome of class actions in this area is unclear for a number of reasons, among them that in most cases the stock prices of these companies have barely budged, making it difficult to calculate shareholder damages.

The NYT quotes Melvyn I. Weiss: “A lot of these stocks aren’t reacting with big drops in price,” Mr. Weiss said. “Or, if they drop initially, they come back over a short period of time.”

Interesting. Could it be that the only people who care about backdating are journalists, plaintiffs' lawyers and law professors?

Comments

[Michael Guttentag]

No surprise. As I’ve argued here and after Vic’s post, the central issue underlying concerns about options backdating is not share price accuracy, but rather about maintaining credible commitments to disclosure rules that are judged ex ante to reduce agency costs.