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Thus, if backdating explains the stock price pattern around option grants, the price pattern should diminish following the new regulation.Indeed, we found that the stock price pattern is much weaker since the new reporting regulation took effect.In particular, he found that stock prices tend to increase shortly after the grants.
In a study that I started in 2003 and disseminated in the first half of 2004 and that was published in Management Science in May 2005 (available at I found that stock prices also tend to decrease before the grants.For several years, Micrel allowed its employees to choose the lowest price for the stock within 30 days of receiving the options.After these stock option terms came to the attention of the IRS in 2002, it worked out a secret deal with Micrel that would allow Micrel to escape million in taxes and required the IRS to keep quiet about the option terms.A 2004 NY Times article describes this case in greater detail (the article is available here), and so does a 2006 article in Tax Notes Magazine (available here).
In a 2004 CNBC interview, Remy Welling said that "this particular -- well, it's called a 30-day look-back plan, is even widespread in Silicon Valley and maybe throughout the country."The terms "spring loading" and "bullet dodging" refer to the practices of timing option grants to take place before expected good news or after expected bad news, respectively. This is what Professor Yermack hypothesized in his article discussed above, though he never used these terms.
Furthermore, the pre-and post-grant price pattern has intensified over time (see graph below).