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The U.S. Securities and Exchange Commission has recently increased its scrutiny of the timing of option grants by publicly traded companies. Motivating the SEC’s interest is longstanding academic research showing an overall pattern of stock prices dropping just before the reported dates of option grants and rising immediately thereafter. See, e.g., Donal Byard & Ying Li, “Guest Column, What Influences the Timing of Option Grants,” The Friday Report, Dec. 17, 2004. The SEC appears to have initially focused on whether companies were timing grants in order to benefit from positive corporate news. Recently, however, the agency appears to have shifted its focus to corporate backdating of options.

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