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Executive Stock Options: To Expense or Not?
Author(s) -
Deshmukh Sanjay,
Howe Keith M.,
Luft Carl
Publication year - 2006
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/j.1755-053x.2006.tb00132.x
Subject(s) - corporate governance , shareholder , business , stock options , stock (firearms) , transparency (behavior) , monetary economics , finance , accounting , economics , mechanical engineering , engineering , political science , law
In analyzing the decision to expense stock options, we find a greater likelihood of options expensing for firms with greater transparency and a closer alignment of interests between managers and shareholders. These results provide indirect evidence that expensing is more likely in firms that practice good corporate governance. We show that firms are less likely to expense when option usage is higher and that this negative relation is stronger for firms that are smaller, have high growth, and are less profitable. We also find that the announcement period returns are not significantly different from zero.