TY - JOUR
T1 - Stock options expensing
T2 - An examination of agency and institutional theory explanations
AU - Brandes, Pamela
AU - Hadani, Michael
AU - Goranova, Maria
N1 - Copyright:
Copyright 2006 Elsevier B.V., All rights reserved.
PY - 2006/5
Y1 - 2006/5
N2 - As the debate over appropriate compensation disclosure continues, some firms have volunteered to recognize stock option costs within their income statements. On the one hand, stock option expensing can significantly enhance the legitimacy of the organization and restore shareholders' confidence in corporate governance practices. On the other hand, expensing stock options could decrease firm earnings, leading to unfavorable comparisons to non-expensing firms. Our logit analysis of 402 S&P firms lends partial support to agency theory explanations for stock option expensing; these results depend on the costs associated with expensing. We find stronger support for the institutional theory perspective that mimetic pressures significantly increase the likelihood that firms will expense stock options, independent of the cost. Our findings have important governance implications, suggesting a more complex model of compensation disclosure in which social pressures dominate voluntary compensation disclosure decisions.
AB - As the debate over appropriate compensation disclosure continues, some firms have volunteered to recognize stock option costs within their income statements. On the one hand, stock option expensing can significantly enhance the legitimacy of the organization and restore shareholders' confidence in corporate governance practices. On the other hand, expensing stock options could decrease firm earnings, leading to unfavorable comparisons to non-expensing firms. Our logit analysis of 402 S&P firms lends partial support to agency theory explanations for stock option expensing; these results depend on the costs associated with expensing. We find stronger support for the institutional theory perspective that mimetic pressures significantly increase the likelihood that firms will expense stock options, independent of the cost. Our findings have important governance implications, suggesting a more complex model of compensation disclosure in which social pressures dominate voluntary compensation disclosure decisions.
KW - Compensation
KW - Corporate governance
KW - Institutional theory
KW - Ownership
UR - http://www.scopus.com/inward/record.url?scp=33645064537&partnerID=8YFLogxK
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U2 - 10.1016/j.jbusres.2005.09.018
DO - 10.1016/j.jbusres.2005.09.018
M3 - Article
AN - SCOPUS:33645064537
SN - 0148-2963
VL - 59
SP - 595
EP - 603
JO - Journal of Business Research
JF - Journal of Business Research
IS - 5
ER -