The effect of options backdating disclosures on the implied cost of equity capital

In this dissertation, I examine the influence of firm-specific disclosures regarding potential backdating of past stock option grants on investor risk perceptions measured by the implied cost of equity capital. Using four different measures, univariate tests provide only weak evidence that investors charge a higher cost of capital when firms announce investigations of past stock option grants to uncover potential backdating and charge a lower cost of capital after conclusion of reviews and filing of delayed and restated financial statements. The regression results are inconsistent across different specifications and suggest that despite intense media scrutiny, the effect of stock options backdating disclosures on the perceived risk of implicated firms was minor.