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We thank Thomas Lys (the Editor) and an anonymous referee for helping us improve the paper.We are also grateful to Sandro Andrade, Jennifer Carpenter, Jay Emerson, Doug Emery, Yaniv Grinstein, Shane Heitzman, Xi Li, Evgeny Lyandes, Howard Mulcahey, Robert Neal, Katherine Schipper, Douglas Skinner, Jerry Zimmermann, seminar participants at the University of Miami and the Securities & Exchange Commission (SEC), and participants of the 2007 Journal of Accounting & Economics Conference and the Western Finance Association 2008 Meetings for their comments and suggestions; and to Hernan Awad for his invaluable help in designing the Monte-Carlo simulations used to compute the grant dates’ odds.At the same time, it’s hard to argue that Steve & team have not created far more value for the company in the past 10 years than these transgressions may have caused.
The release indicated the Police & Fire Retirement System’s intention to both file an expanded complaint and a lead plaintiff motion.
Furthermore, shareholders’ losses are directly related to firms’ likely culpability and the magnitude of the resulting restatements, despite the limited cash flow implications.
And, tellingly, the losses are attenuated when tainted management of less successful firms is more likely to be replaced and relatively many firms become takeover targets.
It’s breathtaking to look at the scope of some of the restatements announced so far – United Health might restate three years worth of financials due to option back-dating, trimming off 6 million of net income!
This is precisely why we included a panel on how to design internal controls for compensation matters in our “1st Annual Executive Compensation” Conference (video archive of that panel and more are in the “Internal Controls” Practice Area of Compensation Standards.com).They also would have signed representation letters to the auditors.