More than 2,000 companies appear to have used backdated stock options, according to a new paper from professors at the University of Iowa and Indiana University.

That figure points to the likelihood that the practice of boosting executives' pay packages by manipulating stock options might be more common than companies have divulged in the past. The Securities and Exchange Commission has upped its investigation of the practice over the course of the past year.

The professors -- Erik Lie of Iowa's Henry B. Tippie College of Business, and Randall A. Heron of Indiana's Kelley School of Business Indiana University -- estimate in their study that 29 percent of firms manipulated grants to top executives at some point between 1996 and 2005. Since August 2002, when the SEC tightened reporting requirements to require that executives report stock option grants they receive within two business days, the paper said that the backdating figure appears to have declined significantly.

Dozens of companies have publicly disclosed that they are the targets of federal investigations, are the subject of investor lawsuits or have conducted their own audits involving the practice, in which stock options are backdated to dates when the company's shares trade at low prices.

Lie and Heron examined nearly 40,000 stock option grants to top executives at 7,774 companies dated from Jan. 1, 1996, to Dec. 1, 2005, using information from the Thomson Financial Insider Filing database. The study also found that more than 13 percent of the options granted to top executives during the years were backdated or otherwise manipulated.

The findings were based on an analysis of whether share values increased or declined after option grant dates. In theory, half should be negative and half should be positive, but the professors found that the values trended upwards.

"In any event, the high fractions underscore how widespread the practice of grant backdating and similar practices must have been," the paper said. "Furthermore, the alleged incidents of backdating that have surfaced in the media appear to represent merely the tip of the iceberg."

The professors wrote that they found a higher frequency of backdating among tech firms, small firms, and firms with high stock price volatility. The then-Big Five, particularly PricewaterhouseCoopers, were associated with lower levels of late filings and unscheduled grants, which the professors said are the likely indicators of backdating and manipulative practices.

The full paper is available at

Previously on WebCPA:

SEC to PCAOB: Brake Guidance on Options (July 10, 2006)

Intuit Part of SEC Options Probe; Symantec Settles with IRS (June 13, 2006)

Study: Stock Options Still Manipulated (Jan. 31, 2006)

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