A major new study of stock-option grants made to directors of U.S. companies reveals evidence of widespread backdating, raising the likelihood that the options scandal will widen.

The study, titled “Lucky Directors,” examines all 29,000 options grants awarded to directors of public companies from 1996 through 2005. It finds that 9% of the grants were “lucky events” that took place “on days with the lowest stock price level of the month.” The incidence of such “lucky” grants is far in excess of what would have occurred if the dates were chosen randomly, leading the authors to conclude that 800 of the grants were not simply lucky but rather were “opportunistically timed.” These 800 suspicious grants were handed out by 460 companies – 7% of all public companies – and benefited 1,400 outside directors.

The authors, Lucian Bebchuk, of Harvard Law School, Yaniv Grinstein, of Cornell, and Urs Peyer, of INSEAD, find other evidence suggesting a pattern of unethical backdating:

We find that lucky grant events were more likely when the potential payoffs from opportunistic timing are relatively high. Indeed, not only were lucky grant events more common in companies with a volatile stock price but also, for a given company with more than one grant event, the likelihood of an individual grant event being lucky increased when the gap between the lowest and the median price of the month of the grant event was higher.

We identify a link between directors’ and executives’ luck. Although director grant events not coinciding with grants to executives were more often lucky that mere luck would predict, director grant events were more likely to be lucky when they did overlap with grants to executives of the firm, especially when they coincided with grants to the CEO …

We also find that the occurrence of lucky grants was correlated with governance factors. In particular, grant events have been more likely to be lucky when the company had more entrenching provisions (weaker shareholder rights) protecting insiders from the risk of removal. Furthermore, grant events have been more likely to be lucky when the board did not have a majority of independent directors.

We further find that directors’ luck has been persistent. Controlling for the various variables identified as being correlated with lucky grant events, we find that events were more likely to be lucky when the firm’s preceding grant event was lucky as well.

The suspicious grants were made by companies in all industry sectors, with the exception of utilities, but were most numerous in the business equipment sector, which encompasses computer hardware, software, and electronics firms. The authors found that approximately 143 business equipment firms – 9% of the 1,593 companies in the sector – had grants that were opportunistically timed. The study does not identify companies by name.

Shareholders rely on boards to be their eyes and ears in overseeing management practices, including compensation. The new study raises questions about how well boards will be able to perform that role when it comes to investigating possible ethical breaches related to the granting of stock options. The research indicates that, as the International Herald Tribune puts it, “board members were not just blissfully ignorant or bystanders when they backdated stock option grants for corporate executives.”