Thursday, August 24, 2006
Defending Against Backdating Suits
Companies will have to make improvements in their internal control procedures to deal with sloppy recordkeeping, poor controls, and improper options practices to satisfy shareholders. However, Conroy points out that, except in cases where there appears to have been deliberate manipulation, there is generally little significant price reaction to corporate backdating announcements.
That's because backdating does not directly affect future cash flow, a metric that investors value greatly, contends Conroy. And while backdating may produce a risk to a company's reputation, as shareholders don't usually like to see restatements, the economic effect remains in the past.
posted by Brian Moran @ 9:15 AM