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Accounting Choices and Director Interlocks: A Social Network Approach to the Voluntary Expensing of Stock Option Grants

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  • Eugene Kang
  • Brian R. Tan

Abstract

We adopt a social network perspective of accounting choices and argue that voluntary expensing of stock option grants by firms may be driven by social influence and learning within a network of director interlocks. We find that firms are more likely to expense stock option grants voluntarily when they have inside director interlocks with (1) other firms that do likewise, and (2) institutional investors of firms accused of financial reporting fraud. This study contributes to extant research by highlighting that a social network approach complements a cost-and-benefit approach (or an economic perspective) when examining the accounting practices of firms. Copyright (c) 2008 The Authors Journal compilation (c) 2008 Blackwell Publishing Ltd.

Suggested Citation

  • Eugene Kang & Brian R. Tan, 2008. "Accounting Choices and Director Interlocks: A Social Network Approach to the Voluntary Expensing of Stock Option Grants," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(9-10), pages 1079-1102.
  • Handle: RePEc:bla:jbfnac:v:35:y:2008-11:i:9-10:p:1079-1102
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    References listed on IDEAS

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    5. Chung, Richard & Firth, Michael & Kim, Jeong-Bon, 2002. "Institutional monitoring and opportunistic earnings management," Journal of Corporate Finance, Elsevier, vol. 8(1), pages 29-48, January.
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    7. repec:bla:joares:v:34:y:1996:i::p:1-20 is not listed on IDEAS
    8. 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.
    9. Karpoff, Jonathan M & Lott, John R, Jr, 1993. "The Reputational Penalty Firms Bear from Committing Criminal Fraud," Journal of Law and Economics, University of Chicago Press, vol. 36(2), pages 757-802, October.
    10. Brian A. Maris & Jo-Mae Maris & Tyler T. Yang, 2003. "The Effect of Exercise Date Uncertainty on Employee Stock Option Value," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 30(5-6), pages 669-698.
    11. Sanjay Deshmukh & Keith M. Howe & Carl Luft, 2006. "Executive Stock Options: To Expense or Not?," Financial Management, Financial Management Association, vol. 35(1), Spring.
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    Cited by:

    1. Ann Ling-Ching Chan & Edward Lee & Jirada Petaibanlue & Ning Tan, 2017. "Do board interlocks motivate voluntary disclosure? Evidence from Taiwan," Review of Quantitative Finance and Accounting, Springer, vol. 48(2), pages 441-466, February.
    2. Chauvet, Vincent & Chollet, Barthélemy & Soda, Giuseppe & Huault, Isabelle, 2011. "The contribution of network research to managerial culture and practice," European Management Journal, Elsevier, vol. 29(5), pages 321-334.
    3. Szymon Kaczmarek & Satomi Kimino & Annie Pye, 2014. "Interlocking directorships and firm performance in highly regulated sectors: the moderating impact of board diversity," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(2), pages 347-372, May.
    4. Koh, Wei Chern, 2011. "What drives firms' decisions to lobby and determinants of their lobbying positions: Evidence from firms' comment letter submissions during FASB's stock option expensing proposal in 2004," The International Journal of Accounting, Elsevier, vol. 46(1), pages 1-24, March.

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