By Cydney Posner

An article from today's WSJ reports on new research suggesting that prepaid variable forward contracts, designed to protect executives from declines in their company share holdings, are often struck not long before the declines occur. The study conducted by research firm Gradient Analytics showed that the contracts "appear to be used opportunistically because they are followed on average by a share decline and unusual levels of negative corporate events," according to the firm's chairman and co-author of the recent report. Specifically, the report "showed that shares of companies whose executives entered into these hedging contracts fell about 8% more than a peer group of similar companies about a year after the contracts were entered into. The report covers 474 contracts spread over 363 firms from 1996 and 2006.' The article notes that a "2007 study of about 100 contracts by Stanford University finance professor Alan Jagolinzer and two colleagues also found correlations between weakness in companies' shares and the contracts." Will this be another study that triggers more scandal and investigation, as did the academic study into option backdating, also championed by the WSJ?

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