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Firms' Voluntary Recognition of Stock-Based Compensation Expense

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  • DAVID ABOODY
  • MARY E. BARTH
  • RON KASZNIK
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    Abstract

    We investigate factors associated with firms' decisions in 2002 and early 2003 to recognize stock-based compensation expense under Statement of Financial Accounting Standards (SFAS) No. 123. We find that the likelihood of SFAS 123 expense recognition is significantly related to the extent of the firm's participation in capital markets, the private incentives of top management and members of the board of directors, the level of information asymmetry, and political costs. Although recognizing firms have significantly smaller SFAS 123 expense, we find no significant incremental relation between recognition likelihood and SFAS 123 expense magnitude after controlling for other factors that we expect explain the recognition decision. We also find positive and significant announcement returns for earlier announcing firms, particularly those stating that increased earnings transparency motivates their decision. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2004.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Accounting Research.

    Volume (Year): 42 (2004)
    Issue (Month): 2 (05)
    Pages: 123-150

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    Handle: RePEc:bla:joares:v:42:y:2004:i:2:p:123-150

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    Cited by:
    1. Edward J. Riedl & Suraj Srinivasan, 2007. "Signaling Firm Performance Through Financial Statement Presentation: An Analysis Using Special Items," Harvard Business School Working Papers 09-031, Harvard Business School.
    2. Larry Prather & Ting-Heng Chu & Paul Bayes, 2009. "Market reactions to announcements to expense options," Journal of Economics and Finance, Springer, vol. 33(3), pages 223-245, July.
    3. Shilpa Manaktala & John D. Phillips & Karen Teitel, 2004. "The Earnings Quality Consequences of Announcements to Voluntarily Adopt the Fair Value Method of Accounting for Stock-Based Compensation," Working Papers 0413, College of the Holy Cross, Department of Economics.
    4. Christopher S. Armstrong & Mary E. Barth & Alan D. Jagolinzer & Edward J. Riedl, 2008. "Market Reaction to the Adoption of IFRS in Europe," Harvard Business School Working Papers 09-032, Harvard Business School.
    5. Mahmud Hossain & Santanu Mitra & Zabihollah Rezaee, 2011. "Incremental information content of option-related excess tax benefit under FASB Statement No. 123R: A research note," International Journal of Accounting and Information Management, Emerald Group Publishing, vol. 19(2), pages 146-168, June.

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