Date of This Version
SFAS, stock options, accounting, expensing options, fair value method
We 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.
Working Paper Number
Manaktala, Shilpa; Phillips, John D.; and Teitel, Karen, "Consequences of Announcements to Voluntarily Adopt the Fair Value Method of Accounting for Stock-Based Compensation" (2004). Economics Department Working Papers. Paper 93.