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I further found that the overall stock market performed worse than what is normal immediately before the grants and better than what is normal immediately after the grants.
However, such measures will not prevent further commissions of other types of corporate fraud, except to the extent to which they increase the perceived or actual consequences to fraud.
Sarbanes Oxley has made options backdating more difficult by shortening the time frame firms have to report options grants.
Investors have developed methods to detect options backdating more quickly.
(In fact, it can be argued that if these conditions hold, there is little reason to backdating options, because the firm can simply grant in-the-money options instead.)David Yermack of NYU was the first researcher to document some peculiar stock price patterns around ESO grants.
In particular, he found that stock prices tend to increase shortly after the grants.
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Increasing the consequences of corporate fraud is one way in which a company can discourage fraud.