The Earnings Quality Consequences of Announcements to Voluntarily Adopt the Fair Value Method of Accounting for Stock-Based Compensation
AbstractWe identify 133 firms that between July and December 2002, announced plans to voluntarily adopt the fair value method of accounting for stock-based compensation. We investigate whether such announcements increased the quality of these firms’ earnings as perceived by market participants. Answering this research question not only provides evidence relevant to the debate surrounding the expensing of employee stock options, but doing so provides evidence that conservative accounting choices in general lead to higher perceived earnings quality. Using two measures of earnings quality, the price-earnings relation and the earnings response coefficient, we find evidence consistent with an increase in perceived earnings quality for these firms relative to a control set of firms that in 2002 did not announce plans to adopt the SFAS 123 stock-based compensation recognition provisions.
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Bibliographic InfoPaper provided by College of the Holy Cross, Department of Economics in its series Working Papers with number 0413.
Length: 36 pages
Date of creation: Dec 2004
Date of revision:
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Web page: http://www.holycross.edu/departments/economics/website/
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SFAS; stock options; accounting; expensing options; fair value method;
This paper has been announced in the following NEP Reports:
- NEP-ACC-2005-02-06 (Accounting & Auditing)
- NEP-ALL-2005-02-06 (All new papers)
- NEP-BEC-2005-02-06 (Business Economics)
- NEP-FIN-2005-02-06 (Finance)
- NEP-LAB-2005-02-06 (Labour Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- 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, 05.
- 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, 09.
- Espahbodi, Hassan & Espahbodi, Pouran & Rezaee, Zabihollah & Tehranian, Hassan, 2002. "Stock price reaction and value relevance of recognition versus disclosure: the case of stock-based compensation," Journal of Accounting and Economics, Elsevier, vol. 33(3), pages 343-373, August.
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