The Reliability of Employee Stock Option Fair Value Disclosures Under SFAS 123 PDF Download
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Author: Carol Ann Marquardt
Publisher:
ISBN:
Category : Employee stock options
Languages : en
Pages : 232
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Book Description
Author: Carol Ann Marquardt
Publisher:
ISBN:
Category : Employee stock options
Languages : en
Pages : 232
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Author: Walter G. Blacconiere
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ISBN:
Category :
Languages : en
Pages : 0
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Book Description
One consequence of the shift to fair value measurement is the emergence of voluntary disclosures in audited financial statements that question the reliability of mandated fair value information. We refer to these disclosures as reliability disavowals and address three questions: Are fair value estimates less reliable for firms that disavow? Do managers of disavowal firms have reason to believe that they cannot reliably estimate the disavowed fair values? Are factors indicative of reliability problems associated with the decision to disavow? We address these questions in the context of managers' stock option compensation estimates disclosed under SFAS 123. Our results suggest reliability disavowals reflect legitimate reliability concerns, consistent with managers believing that supplemental disclosures about fair value estimates provide useful information about the limitations of the estimates, which is the FASB's position in SFAS 157.
Author: Wendy Heltzer
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ISBN:
Category :
Languages : en
Pages : 34
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Book Description
This study examines practitioners' perceptions of uses of stock option compensation expense. Specifically, Statement of Financial Accounting Standard (SFAS) No. 123(R) requires firms to report the estimated fair value of stock option compensation as an expense over the employees' required service period. There has been much controversy surrounding this standard: academics, industry leaders and regulators question the reliability of estimating stock option value; consequently, the usefulness of reporting stock option expense in financial statements has been challenged. We provide insights into this debate by finding that financial analysts, on average, support the expensing of stock option expense. Further, approximately two-thirds of analysts use stock option expense in their forecast of short and long term earnings. We also find that analysts' practices regarding stock option expense are not swayed by managements' exclusion of stock option expense in earnings announcements. Together, our findings suggest that financial analysts believe stock option expense contains meaningful information about firm performance.
Author: Haidan Li
Publisher:
ISBN:
Category :
Languages : en
Pages : 47
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Book Description
This study provides a theoretical analysis and empirical investigation of the valuation implications of employee stock options. I extend the residual income model to incorporate the effects of employee stock options, and then empirically test the model using data related to employee stock options collected from companies' financial statements. I show that the value obtained from the traditional residual income model based on reported earnings must be adjusted for the value of outstanding options and expected stock option expense. The empirical results are consistent with the model, indicating the existence of a cross-sectional negative association between share prices and both outstanding employee stock options and expected stock option expense. In addition, I examine the market's response to the disclosures of stock option information around firms' 10-K filings with the SEC. I find that SFAS 123 footnote disclosures at 10-K filings communicate useful information about employee stock options to investors.
Author: Leonard C. Soffer
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ISBN:
Category :
Languages : en
Pages : 30
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Book Description
One of the cornerstones of financial statement analysis is the discounted cash flow valuation. Despite the broad use of this valuation technique, and the economic importance of employee stock options to firm values, there is little guidance on how employee stock options should be incorporated in a valuation. This paper provides a comprehensive approach to doing so, including consideration of the income tax implications of option exercises, the simultaneity of equity and option valuation, and the use of the disclosures that were mandated recently by Statement of Financial Accounting Standards No. 123. The paper provides a comprehensive example using Microsoft's fiscal 1997 financial statements and employee stock option disclosure. This paper should be of interest to academics and practitioners involved in corporate valuation and financial statement analysis.
Author: Mohan Venkatachalam
Publisher:
ISBN:
Category :
Languages : en
Pages : 52
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Book Description
In December 2004, the Financial Accounting Standards Board (FASB) mandated the use of a fair value based measurement attribute to value employee stock options (ESOs) via FAS 123-R. In anticipation of FAS 123-R, between March 2004 and November 2005, several firms accelerated the vesting of ESOs to avoid recognizing existing unvested ESO grants at fair value in future financial statements. We find that the likelihood of accelerated vesting is higher if (i) acceleration has a greater effect on future ESO compensation expense, especially related to underwater options; and (ii) firms suffer greater agency problems, proxied by fewer block-holders, lower pension fund ownership and top five officers holding a greater share of ESOs. We also find a negative stock price reaction around the announcement of the acceleration decision, especially for firms with greater agency problems. Furthermore, stock returns are significantly negative before the new vesting dates and positive afterward, suggesting that vesting dates could have been backdated.
Author: Anne Marie Clem
Publisher:
ISBN:
Category : Corporations
Languages : en
Pages : 188
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Author: International Accounting Standards Board
Publisher:
ISBN:
Category : Accounting
Languages : en
Pages : 58
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Author: Wayne R. Landsman
Publisher:
ISBN:
Category : Accounting
Languages : en
Pages : 38
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Book Description
I identify issues that bank regulators need to consider if fair value accounting is used for determining bank regulatory capital and when making regulatory decisions. In financial reporting, US and international accounting standard setters have issued several disclosure and measurement and recognition standards for financial instruments and all indications are that both standard setters will mandate recognition of all financial instruments at fair value. To help identify important issues for bank regulators, I briefly review capital market studies that examine the usefulness of fair value accounting to investors, and discuss marking-to-market implementation issues of determining financial instruments' fair values. In doing so, I identify several key issues. First, regulators need to consider how to let managers reveal private information in their fair value estimates while minimising strategic manipulation of model inputs to manage income and regulatory capital. Second, regulators need to consider how best to minimise measurement error in fair values to maximise their usefulness to investors and creditors when making investment decisions, and to ensure bank managers have incentives to select investments that maximise economic efficiency of the banking system. Third, cross-country institutional differences are likely to play an important role in determining the effectiveness of using mark-to-market accounting for financial reporting and bank regulation.
Author: Timothy B. Bell
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
We use the Ohlson (1995, 1999) and Feltham-Ohlson (1999) valuation models to compare the extent to which Accounting Principles Board Opinion 25: Accounting for Stock Issued to Employees (APB 25), Statement of Financial Accounting Standards No. 123: Accounting for Stock-Based Compensation (SFAS 123), and the Exposure Draft: Accounting for Stock-Based Compensation reflect the market's assessment of the effects of employee stock options on firm value for a sample of 85 profitable computer software firms. Findings from the SFAS 123 approach indicate the market appears to value ESO expense not as an expense but as an asset. Most notably, the results suggest that investors perceive that employee stock options create an intangible asset that they value more highly than other assets of the firm. The Exposure Draft approach, according to our findings, best captures the market's perception of the economic effect of employee stock options (ESO) on firm value for profitable computer software companies. However, we find a conflict in (1) the positive manner in which investors appear to value ESO expense, and (2) the negative relation between current ESO expense and future abnormal earnings. This conflict could be a an artifact of the restrictiveness of the abnormal earnings forecasting equation we estimate, although it also calls into question whether investors in profitable software companies assess correctly the effect of ESOs on profitable software firms value.
