We study the spatial diffusion of stock backdating, an instance of corporate misconduct about which public information was virtually absent until 2005. Contrary to the findings of Bizjack, Lemmon, and Whitby (2009), our results reveal that this "invisible" practice did not diffuse through board interlocks. Rather, stock backdating spread through geographic proximity: firms were more likely to backdate stock options to the extent that other firms located geographically close to them had done so. Lending support to the importance of localized interactions among members of the local business elite, the effect of geographical proximity was conditional on high levels of local board interlocks. Our findings regarding the differential impact of geographic proximity and board interlocks on the diffusion of this invisible practice are analogous to the diffusion pattern of controversial practices proposed by Davis and Greve (1997).
- Board interlocks
- Corporate misconduct
- Interorganizational relations
- Spatial proximity
ASJC Scopus subject areas
- Economics, Econometrics and Finance (miscellaneous)
- Strategy and Management