It’s been a decade since scores of corporations became embroiled in the “dating game” scandals over backdated CEO stock options, and most people thought that reforms in the aftermath ended the problem years ago.

But a recent paper, coauthored by Robert M. Daines of Stanford University, has unearthed a new and potentially more sinister version of the scheme — call it Dating Game 2.0 — that replaced the original. Daines is the Pritzker Professor of Law and Business at Stanford Law School and a senior faculty member at the Arthur and Toni Rembe Rock Center on Corporate Governance, which is a joint initiative of the law school and Stanford Graduate School of Business.

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But a recent paper, coauthored by Robert M. Daines of Stanford University, has unearthed a new and potentially more sinister version of the scheme — call it Dating Game 2.0 — that replaced the original. Daines is the Pritzker Professor of Law and Business at Stanford Law School and a senior faculty member at the Arthur and Toni Rembe Rock Center on Corporate Governance, which is a joint initiative of the law school and Stanford Graduate School of Business.

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“I was surprised, because it sounded too cynical at first,” says Daines, who teamed up with Grant R. McQueen and Robert J. Schonlau at Brigham Young University. “But we tested for all kinds of benign explanations and none of them fit the data. The unusual stock patterns happen so often, and they exactly fit with the self-interest of the CEOs and senior executives. Either the CEOs are incredibly lucky or they are manipulating stock prices.”

Daines and his colleagues found a remarkable telltale V-shaped pattern in stock prices when they analyzed 1,500 companies that granted options. On average, share prices dipped markedly in the 90 days before a grant and quickly began rebounding immediately afterward.

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Using conservative assumptions, Daines and his colleagues estimate that the new maneuvering provides an average extra payout of just over $100,000 per CEO. That’s above and beyond their salaries and the official value of their options.

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Coincidence? Not likely, says Daines. The V pattern turns out to get stronger at companies where CEOs have both more incentive and more opportunity to manipulate share prices.

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Again, Daines says, it’s hard to see this as a coincidence. If the “bad news” before an option grant is genuine, you would expect the stock to continue to do poorly after the options are awarded. But that isn’t the case. More often than not, the researchers found, the pre-grant bad news was followed by higher returns.

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“This might actually be worse than the original backdating scandal,” Daines says. “The original scandal was bad because it suggested that executives might be overpaid, but this distorts stock prices for months. This gives executives an incentive to delay good projects, and that’s bad because you typically want to make good investments as soon as you can.”

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“One of my takeaways from this is that it’s really hard to get things right in aligning the incentives of executives and shareholders,” Daines says. “We’re getting better and better at it, but it’s easier to complain about problems than to get things right.”

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