Companies with the Most Aggressive Accounting Have Higher Stock Compensation and Share Repurchases, Audit Integrity Finds

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Companies with the Most Aggressive Accounting Have Higher Stock Compensation and Share Repurchases, Audit Integrity Finds>

Alarming Correlation Suggests Some Share Repurchase Programs May Ultimately Benefit Management at the Expense of Shareholders >

Last update: 9:00 a.m. EST Dec. 18, 2008
LOS ANGELES, Dec 18, 2008 (BUSINESS WIRE) -- U.S. corporations with the most aggressive accounting are dramatically more likely to offer generous stock options for their top managers and engage in share buyback programs, according to a study made public today by Audit Integrity, an independent research firm that gauges corporate integrity risk. >

Almost 50 percent of companies whose accounting Audit Integrity deems "very aggressive" offer lucrative stock awards to their senior managers and engage in share repurchase programs. By comparison, only six percent of companies with conservative accounting offer share repurchase programs. >

Although touted as a tax efficient tool to return cash to shareholders when a stock is trading below its intrinsic value, Audit Integrity warns that share repurchases can unjustly benefit company management at the expense of shareholders. Many share repurchase programs do not have the stated intent of improving the stock price, but rather improve the metrics that many executive incentive plans are tied to, or benefit option holders more than shareholders. Accelerated share repurchase programs, where the ultimate price is determined at the settlement of a forward contract, can be particularly costly to shareholders. >

"We have consistently found share repurchase plans to be linked to aggressive, self-serving management behavior," said Jack Zwingli, president and CEO of Audit Integrity. "While share repurchase programs can benefit shareholders, we are too often seeing them be used as a tool for manipulating per share earnings so that CEOs and other top executives can bolster incentive-based compensation. Good corporate governance dictates that boards critically analyze proposed share repurchases to ensure that they are ultimately serving the best interests of shareholders." >

Among the more than 50 publicly traded corporations that Audit Integrity has identified as very aggressive with high levels of incentive-based compensation and share repurchase programs are:
-- Parker-Hannifin Corporation
-- KLA-Tencor Corporation
-- CA, Inc.
-- Alliance Data Systems Corporation
-- Mirant Corporation
-- Marchex, Inc.
-- Cisco Systems, Inc.
-- Amgen, Inc >

Audit Integrity's study is based on a review of its risk ratings and database on over 7,000 North American corporations. Audit Integrity tracks many accounting and governance risk factors, and was able to identify which companies have had both a recent share repurchase program as well as the worst risk ratings.
Audit Integrity's study is available on AuditIntegrity.com, or by contacting the company at 877-44-AUDIT. >

About Audit Integrity
Founded in 2002, serving investors, insurers, auditors and corporate finance professionals, Audit Integrity is a leading independent research firm that rates more than 7,000 public companies based on their corporate integrity. In addition to its flagship Accounting and Governance Risk (AGR) ratings, Audit Integrity also forecasts class action litigation risk, material financial restatement risk, and equity performance risk. The statistical correlation of these ratings has been confirmed by internal and third-party tests. Audit Integrity has offices in Los Angeles and New York City. For more information, please visit www.auditintegrity.com >

SOURCE: Audit Integrity Starkman & Associates Jeffrey Richardson, 212-252-8545, ext. 11 jrichardson@starkmanpr.com or James Cheston, 212-252-8545, ext. jcheston@starkmanpr.com
Copyright Business Wire 2008


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This posting was made my Jim Jacobs, President & CEO of Jacobs Executive Advisors. Jim also serves as Leader of Jacobs Advisors' Insurance Practice.