We investigate the effect of stock option backdating on the information risk of accused companies. This research provides evidence concerning the consequences that a change in this risk may have on equity values after discovery that companies participated in this questionable behavior. We compare the earnings' response coefficients (ERC) for companies charged with backdating for periods before and after it was revealed that these companies allegedly engaged in these activities. Our results indicate a significantly negative change in ERCs. This finding is consistent with the conclusion that the credibility of backdating company's earnings is lower after discovery of their backdating behavior. We also estimate the amount of company valuation losses that are based on the changes in the ERC. We find, on average, that a firm suffered approximately $22.6 million in valuation losses for the three quarterly earnings announcements in our post announcement period or an additional $7.5 million in costs of information risk for each quarterly earnings announcement. Although our estimate of the valuation losses ($2,441 million) from declined ERCs is small when compared to the Bernile and Jarrell (2007)$100 billion estimate of the equity loss that all backdating companies suffered, the economic magnitude of valuation losses related to changes in information risk appears to be significant for each firm.