Discussion of Firms' Voluntary Recognition of Stock-Based Compensation Expense

摘要

More than 100 firms voluntarily elected to expense stock options primarily in the summer and fall of 2002. The study by Aboody, Barth, and Kasznik (hereafter, ABK) examines the determinants of the election decision and the market reactions to these elections. Before discussing the study, it is important to note other actions that were concurrent with the decisions to expense and that had an impact on the corporate climate in the U.S. at the time of the elections (see table 1). Table 1 reveals several important patterns. First, actions by Congress and the International Accounting Standards Board (IASB) may have led firms to believe that expensing would become mandatory. The ABK study generally treats the election to expense options as a voluntary accounting change. It may be more akin to early adoption of a mandatory change, even for firms that the study defines as early announcers (announced before July 31, 2002). Second, the Sarbanes-Oxley Act, the NASDAQ and New York Stock Exchange (NYSE) rules, the financial statement certification requirements, and the Conference Board actions are all responses to increasing demands for improved corporate governance. Excessive compensation was in the limelight.