Option grants to new employees have their own set of backdating issues.

A company may want to give a new employee the benefit of any increase in the stock price from the date of acceptance of the employment offer.

Options granted as of the date of employment acceptance are also troublesome if the plan does not permit grants to non-employees or if the additional tax and accounting issues relating to grants to non-employees are not adequately addressed.

Even though no documents are backdated and there may be no intent to select a lower exercise price, backdating issues may arise if the stock price increases before the corporate formalities have been completed.

It could also lead to delays in filing financial statements while the magnitude of the problem is determined.

Adverse tax consequences may result from option backdating practices.

The revelation that scores of firms engaged in the illegal manipulation of stock options’ grant dates (i.e. The evidence indicates that the consequences stemming from management misconduct and misrepresentation are of first-order importance in this context as shareholders of firms accused of backdating experience large negative, statistically significant abnormal returns.

Furthermore, shareholders’ losses are directly related to firms’ likely culpability and the magnitude of the resulting restatements, despite the limited cash flow implications.