IDEAS home Printed from https://ideas.repec.org/a/bla/joares/v42y2004i2p123-150.html
   My bibliography  Save this article

Firms' Voluntary Recognition of Stock‐Based Compensation Expense

Author

Listed:
  • DAVID ABOODY
  • MARY E. BARTH
  • RON KASZNIK

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.

Suggested Citation

  • David Aboody & Mary E. Barth & Ron Kasznik, 2004. "Firms' Voluntary Recognition of Stock‐Based Compensation Expense," Journal of Accounting Research, Wiley Blackwell, vol. 42(2), pages 123-150, May.
    • Handle: RePEc:bla:joares:v:42:y:2004:i:2:p:123-150
    DOI: 10.1111/j.1475-679X.2004.00132.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1475-679X.2004.00132.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1475-679X.2004.00132.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Dechow, Patricia M. & Sloan, Richard G., 1991. "Executive incentives and the horizon problem : An empirical investigation," Journal of Accounting and Economics, Elsevier, vol. 14(1), pages 51-89, March.
    2. Imhoff, E.A. & Thomas, J.K., 1988. "Economic Consequences Of Accounting Standards: The Lease Disclosure Rule Change," Papers fb-_88-36, Columbia - Graduate School of Business.
    3. Barry, Christopher B. & Brown, Stephen J., 1985. "Differential Information and Security Market Equilibrium," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 20(4), pages 407-422, December.
    4. DeFond, Mark L. & Jiambalvo, James, 1994. "Debt covenant violation and manipulation of accruals," Journal of Accounting and Economics, Elsevier, vol. 17(1-2), pages 145-176, January.
    5. Paul Gompers & Joy Ishii & Andrew Metrick, 2003. "Corporate Governance and Equity Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 107-156.
    6. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    7. Amir, E & Ziv, A, 1997. "Recognition, disclosure, or delay: Timing the adoption of SFAS no 106," Journal of Accounting Research, Wiley Blackwell, vol. 35(1), pages 61-81.
    8. Beaver, W & Eger, C & Ryan, S & Wolfson, M, 1989. "Financial-Reporting, Supplemental Disclosures, And Bank Share Prices," Journal of Accounting Research, Wiley Blackwell, vol. 27(2), pages 157-178.
    9. Fields, Thomas D. & Lys, Thomas Z. & Vincent, Linda, 2001. "Empirical research on accounting choice," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 255-307, September.
    10. Healy, Paul M. & Kang, Sok-Hyon & Palepu, Krishna G., 1987. "The effect of accounting procedure changes on CEOs' cash salary and bonus compensation," Journal of Accounting and Economics, Elsevier, vol. 9(1), pages 7-34, April.
    11. Klein, Roger W. & Bawa, Vijay S., 1977. "Abstract: The Effect of Limited Information and Estimation Risk on Optimal Portfolio Diversification," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(4), pages 669-669, November.
    12. Holthausen, Robert W. & Leftwich, Richard W., 1983. "The economic consequences of accounting choice implications of costly contracting and monitoring," Journal of Accounting and Economics, Elsevier, vol. 5(1), pages 77-117, April.
    13. Klein, Roger W. & Bawa, Vijay S., 1977. "The effect of limited information and estimation risk on optimal portfolio diversification," Journal of Financial Economics, Elsevier, vol. 5(1), pages 89-111, August.
    14. Mary E. Barth & Greg Clinch & Toshi Shibano, 2003. "Market Effects of Recognition and Disclosure," Journal of Accounting Research, Wiley Blackwell, vol. 41(4), pages 581-609, September.
    15. Imhoff, Eugene Jr. & Thomas, Jacob K., 1988. "Economic consequences of accounting standards : The lease disclosure rule change," Journal of Accounting and Economics, Elsevier, vol. 10(4), pages 277-310, December.
    16. Healy, Paul M., 1985. "The effect of bonus schemes on accounting decisions," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 85-107, April.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aboody, David & Kasznik, Ron & Williams, Michael, 2000. "Purchase versus pooling in stock-for-stock acquisitions: Why do firms care?," Journal of Accounting and Economics, Elsevier, vol. 29(3), pages 261-286, June.
    2. Georgios Voulgaris & Konstantinos Stathopoulos & Martin Walker, 2015. "CEO Pay Contracts and IFRS Reconciliations," European Accounting Review, Taylor & Francis Journals, vol. 24(1), pages 63-93, May.
    3. Mehdi Bouras & Mohamed Imen Gallali, 2017. "Earnings Management, Equity-based Compensation, Economic Conjuncture and Governance Mechanisms: A Comparative Study between France and the United States," International Journal of Economics and Financial Issues, Econjournals, vol. 7(2), pages 585-600.
    4. Daniel A. Bens & Steven J. Monahan, 2008. "Altering Investment Decisions to Manage Financial Reporting Outcomes: Asset‐Backed Commercial Paper Conduits and FIN 46," Journal of Accounting Research, Wiley Blackwell, vol. 46(5), pages 1017-1055, December.
    5. Preeti Choudhary & Shivaram Rajgopal & Mohan Venkatachalam, 2009. "Accelerated Vesting of Employee Stock Options in Anticipation of FAS 123‐R," Journal of Accounting Research, Wiley Blackwell, vol. 47(1), pages 105-146, March.
    6. Steven Balsam, 1998. "Discretionary Accounting Choices and CEO Compensation," Contemporary Accounting Research, John Wiley & Sons, vol. 15(3), pages 229-252, September.
    7. Bushman, Robert M. & Smith, Abbie J., 2001. "Financial accounting information and corporate governance," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 237-333, December.
    8. Roychowdhury, Sugata, 2006. "Earnings management through real activities manipulation," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 335-370, December.
    9. Zhijun Lin & Ming Liu & Carlos Noronha, 2016. "The Impact of Corporate Governance on Informative Earnings Management in the Chinese Market," Abacus, Accounting Foundation, University of Sydney, vol. 52(3), pages 568-609, September.
    10. Dean Hanlon, 2019. "Mandatory accounting change and debt covenant violation: Additional evidence from SFAS 150," Australian Journal of Management, Australian School of Business, vol. 44(3), pages 355-387, August.
    11. David Folsom & Paul Hribar & Richard D. Mergenthaler & Kyle Peterson, 2017. "Principles-Based Standards and Earnings Attributes," Management Science, INFORMS, vol. 63(8), pages 2592-2615, August.
    12. Hui-Wen Tang & Chong-Chuo Chang, 2015. "Does corporate governance affect the relationship between earnings management and firm performance? An endogenous switching regression model," Review of Quantitative Finance and Accounting, Springer, vol. 45(1), pages 33-58, July.
    13. Wei Ting & Sin-Hui Yen & Sheng-Shih Huang, 2009. "Top Management Compensation, Earnings Management And Default Risk: Insights From The Chinese Stock Market," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 3(1), pages 31-46.
    14. Sidney J. Gray & Tony Kang & Zhiwei Lin & Qingliang Tang, 2015. "Earnings Management in Europe Post IFRS: Do Cultural Influences Persist?," Management International Review, Springer, vol. 55(6), pages 827-856, December.
    15. Armstrong, Christopher S. & Guay, Wayne R. & Weber, Joseph P., 2010. "The role of information and financial reporting in corporate governance and debt contracting," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 179-234, December.
    16. Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
    17. Iatridis, George & Kadorinis, George, 2009. "Earnings management and firm financial motives: A financial investigation of UK listed firms," International Review of Financial Analysis, Elsevier, vol. 18(4), pages 164-173, September.
    18. Jorge Farinha & Luis Filipe Viana, 2006. "Board structure and modified audit opinions: the case of the Portuguese Stock Exchange," CEF.UP Working Papers 0609, Universidade do Porto, Faculdade de Economia do Porto.
    19. Detzen, Dominic & Zülch, Henning, 2012. "Executive compensation and goodwill recognition under IFRS: Evidence from European mergers," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 21(2), pages 106-126.
    20. Nemit Shroff, 2017. "Corporate investment and changes in GAAP," Review of Accounting Studies, Springer, vol. 22(1), pages 1-63, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:joares:v:42:y:2004:i:2:p:123-150. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0021-8456 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.