Nearly 20 years ago academics began calling attention to the fact that companies tend to award stock options to executives just

Nearly 20 years ago academics began calling attention to the fact that companies tend to award stock options to executives just before releasing positive news that sends the stock price higher — too-good-to-be-true timing that boosts executive compensation.
   They subsequently discovered that companies were also "backdating" — retroactively changing grant dates to increase options’ value. Researchers have estimated that during the early 2000s, backdating allowed firms to pay executives an average of $ 500, 000 more a year. From 2003 to 2010 the Securities and Exchange Commission pursued related civil actions against 32 companies, including Apple.
   Retroactively changing grant dates is technically forbidden under a provision of the 2002 Sarbanes-Oxley Act that requires companies to report option grants within two days of issuance. In addition, a 2006 SEC rule requires companies to disclose whether they have backdated options or plan to do so. But there’s little evidence that the SEC has consistently enforced either rule.
   In a new study aimed at determining whether options manipulation has abated, three scholars from the University of Michigan’s Ross School of Business examined 1. 4 million option grants made from 2008 to 2014. They searched for evidence of backdating, spring loading, and " bullet dodging" , or releasing negative news that causes a price decline just before an options grant. To identify instances of possible backdating, the researchers looked at how promptly companies reported option grants.
   They found that although 90% of grants met the two-day requirement, delays for the other 10% sometimes exceeded 60 days. Examining stock prices and returns in relation to the market average to calculate what are known as expected and abnormal returns, they learned that grants reported late were more likely to have gained disproportionate value after the award, with longer delays correlating with higher abnormal returns. Although the combination of delayed reporting and abnormal price movements doesn’t prove that companies are still backdating, it’s highly suggestive.
   To study spring loading and bullet dodging, the researchers analyzed stock price movements before and after option grants. They found that prices tended to be flat or to decline just before grants were awarded and to rise soon after, with abnormal returns averaging 6% — results that suggest companies are coordinating the timing of grants and news. The legality of spring loading and bullet dodging is hotly debated; these researchers argue that companies should be required to disclose the practices.