Michael F. Koehn

Is backdating executive stock options always costly to shareholders

We use a binomial model to investigate the cost to shareholders of backdating employee stock option (ESO) grants to award in‐the‐money rather than at‐the‐money options to a manager. When the expected return of the stock underlying an ESO is sufficiently close to the risk‐free rate, a backdating arrangement can always be structured to simultaneously improve shareholders’ wealth and the managers utility. The smaller the managers non‐option wealth, personal income tax rate or risk tolerance, the more likely a backdating arrangement can be welfare improving.

Why did so many savings and loans go bankrupt

Abstract Non-parametric class probability trees are used to determine the characteristics of bankrupt S&Ls. The probability of failure varies systematically with the investment strategy of S&Ls. This systematic variation suggests that the primary cause of the S&L crisis may be due to investment strategies encouraged by the regulatory structure of the industry.