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Stock Option Exercises and Discretionary Disclosure

In: Advances In Quantitative Analysis Of Finance And Accounting

Author

Listed:
  • Wei Zhang

    (School of Business, University at Albany, 1400 Washington Avenue, Alabany, NY 12222, USA)

  • Steven F. Cahan

    (University of Auckland Business School, Private Bag 92019, Auckland, New Zealand)

Abstract

In this paper, we empirically examine recent claims by politicians and business journalists that stock option exercises give managers incentives to adopt certain disclosure policies. We predict that when firms have bad news, large stock option exercises will have a negative effect on discretionary disclosures. Using Association for Investment Management and Research ratings to measure discretionary disclosures, for a sample of 359 firm-year observations from 18 industries, we find evidence supporting our prediction after we control for stock option grants. Although we confirm previous findings that option awards create incentives for more disclosures, our results also suggest that stock option exercises could have an adverse effect on accounting disclosures when firms are experiencing a period of negative returns in stock markets.

Suggested Citation

  • Wei Zhang & Steven F. Cahan, 2007. "Stock Option Exercises and Discretionary Disclosure," World Scientific Book Chapters, in: Cheng-Few Lee (ed.), Advances In Quantitative Analysis Of Finance And Accounting, chapter 4, pages 63-84, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812772213_0004
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