Disclosed Values of Option-Based Compensation - Incompetence, Deliberate Underreporting or the Use of Expected Option Life?
AbstractNew accounting standards require firms to value the costs of option-based compensation (OBC). Earlier research has documented that firms in the US generally underreport the values of OBC by manipulating the model inputs used for valuation purposes. This paper examines the information on and values of OBC disclosed by Danish firms. The results show that many firms fail to provide the information required on OBC. However, this does not seem to be a deliberate attempt to hide information, but rather is the result of firms not paying enough attention to the information requirements. Similarly, when studying the disclosed values of OBC, there is no clear evidence of underreporting. For example, there is no evidence that firms use manipulated values for the Black-Scholes (Merton) model inputs in their valuations. Furthermore, firms determine the expected option life in a way that is generally consistent with the guidelines provided by the accounting standards. The only exception is when options are granted to the board of directors, as this led a few firms to underreport option values in a way that cannot be explained by an appropriate adjustment of the expected option life. These findings differ from those of the US, but are consistent with the more limited use of OBC and the lower level of attention paid to these values in Denmark. Furthermore, the financial press in Denmark and powerful Danish institutional investors seem to have a disciplinary effect on Danish firms such that most of the firms provide sufficient and accurate information even though the official consequences of not doing so are very limited.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal European Accounting Review.
Volume (Year): 18 (2009)
Issue (Month): 3 ()
Contact details of provider:
Web page: http://www.tandfonline.com/REAR20
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.