Corporate executives are still manipulating stock options, say researchers at the University of Michigan's Ross School of Business.

Finance professors M.P. Narayanan and H. Nejat Seyhun analyzed data on all option grants by officers and directors of publicly traded firms between Jan. 1, 2000, and Aug. 31, 2004. Their findings reveal that nearly a quarter of the 569,000 option grants reported to the Securities and Exchange Commission by insiders after Sarbanes-Oxley regulations went into effect Aug. 29, 2002, were reported late, with 10 percent of the grants being reported more than one month after the required date.

"Backdating of grant dates and camouflaged timing appear to be practiced even after SOX, especially by smaller firms," said Narayanan, in a statement.

Under SOX, executive option grants must be reported to the SEC within two business days of the grant date. Since the exercise price is usually set at the stock price on the grant date, managers want to keep that price as low as possible, in hopes of reaping higher gains later when they exercise their options, the professors said.

Small firms, which tend to have less official scrutiny, weaker corporate governance and lower institutional ownership, exhibited significantly higher average reporting lags (the time between the presumed grant date and the date of filing the grant with the SEC) post-SOX, averaging 19 business days compared to 12 days for the overall sample, according to the study.

The longer companies delayed reporting option grants, the greater the financial gains, the study concluded. It found adjusted stock returns for firms that reported option grants promptly were 1.5 percent, while those that waited up to 22 days had gains of 3.5 percent. The research showed that returns rose to 8.7 percent after 30 days and 25 percent after 90 days for large grants of more than 100,000 shares.

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