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The role of tax regulation and compensation contracts in the decision to voluntarily expense employee stock options

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  • Blacconiere, Walter G.
  • Johnson, Marilyn F.
  • Lewis, Melissa F.

Abstract

We show that firms with executive bonuses that qualify for deduction under Internal Revenue Code Section 162(m) were less likely to expense stock option compensation (SOC) in 2002. Additionally, the more likely it is that a qualified firm will incur re-contracting costs, the less likely it is that the firm will expense SOC. CEOs of qualified firms that also expense SOC receive smaller bonuses than CEOs of expensing firms that are not qualified under 162(m), and the lower 162(m) bonuses are not offset by higher SOC. Our results suggest that 162(m) tax incentives are an important determinant of the decision to expense SOC.

Suggested Citation

  • Blacconiere, Walter G. & Johnson, Marilyn F. & Lewis, Melissa F., 2008. "The role of tax regulation and compensation contracts in the decision to voluntarily expense employee stock options," Journal of Accounting and Economics, Elsevier, vol. 46(1), pages 101-111, September.
    • Handle: RePEc:eee:jaecon:v:46:y:2008:i:1:p:101-111
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    References listed on IDEAS

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    1. John R. Graham & Michael L. Lemmon, 1998. "Measuring Corporate Tax Rates And Tax Incentives: A New Approach," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(1), pages 54-65, March.
    2. Bushman, Robert M. & Indjejikian, Raffi J. & Smith, Abbie, 1996. "CEO compensation: The role of individual performance evaluation," Journal of Accounting and Economics, Elsevier, vol. 21(2), pages 161-193, April.
    3. Perry, Tod & Zenner, Marc, 2001. "Pay for performance? Government regulation and the structure of compensation contracts," Journal of Financial Economics, Elsevier, vol. 62(3), pages 453-488, December.
    4. Wayne Guay & Richard Sloan, 2003. "Accounting for Employee Stock Options," American Economic Review, American Economic Association, vol. 93(2), pages 405-409, May.
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    Cited by:

    1. Voßmerbäumer, Jan, 2012. "Effizienzwirkungen einer Regulierung von Managergehältern durch das Steuerrecht," arqus Discussion Papers in Quantitative Tax Research 125, arqus - Arbeitskreis Quantitative Steuerlehre.
    2. Jan Voßmerbäumer, 2012. "Effizienzwirkungen einer Regulierung von Managergehältern durch das Steuerrecht," Schmalenbach Journal of Business Research, Springer, vol. 64(5), pages 536-561, August.
    3. Bronson, Scott N. & Hogan, Chris E. & Johnson, Marilyn F. & Ramesh, K., 2011. "The unintended consequences of PCAOB auditing Standard Nos. 2 and 3 on the reliability of preliminary earnings releases," Journal of Accounting and Economics, Elsevier, vol. 51(1-2), pages 95-114, February.
    4. Bronson, Scott N. & Hogan, Chris E. & Johnson, Marilyn F. & Ramesh, K., 2011. "The unintended consequences of PCAOB auditing Standard Nos. 2 and 3 on the reliability of preliminary earnings releases," Journal of Accounting and Economics, Elsevier, vol. 51(1), pages 95-114.
    5. Voßmerbäumer, Jan & Wagner, Franz W., 2013. "Steuerwirkungen betrieblicher Entgeltpolitik," arqus Discussion Papers in Quantitative Tax Research 144, arqus - Arbeitskreis Quantitative Steuerlehre.

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