The Markets Reaction To The FASB Stock-Based Compensation Project

Freeman, Gary R.; Larsen, Glen A.

doi:10.19030/jabr.v13i4.5743

Cited by 5 publications

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“…There are various studies that have considered value relevance of recognition vis‐à‐vis disclosure (Dechow et al , 1996; Freeman and Larsen, 1997; Espahbodi et al , 2002). Except, Dechow et al other authors conclude that market participants value disclosure and recognition differently.…”

Section: Literature Reviewmentioning

confidence: 99%

Stock option compensation

Dhar

2011

International Journal of Commerce and Management

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PurposeThe purpose of this paper is to examine the impact on selected financial performance indicators of Indian firms adopting employee stock option (ESO) schemes, if they recognize expenses and adopting fair‐value method of accounting pursuant to International Financial Reporting Standard (IFRS) 2.Design/methodology/approachThe CMIE Prowess database was searched for Indian firms having stock option schemes and issue of shares pursuant to that scheme during the years ended 31 March 2007 and 31 March 2008. The data on financial performance were hand picked from the annual report of the sample companies. The impact of expense recognition on financial performance indicators were computed by using memorandum disclosures in directors' reports on use of fair value methods for ESO accounting. A non‐parametric Kruskal‐Wallis test was employed to find out the statistical significance of the impact. The role of firm growth characteristics on impact of expense recognition was also investigated.FindingsThe impact of recognizing expenses associated with stock option compensation varies considerably by entity and such recognition would have a material impact on key performance measure for at least 22 percent of the sample companies. Contrary to expectation, firm growth characteristics were found to have no statistical significance in explaining impact of expense recognition.Research limitations/implicationsThe sample is restricted to India and may not be reflective of other countries. Also, this study considers the impact of expense recognition as if the requirements of IFRS 2 were adopted in 2006‐2007/2007‐2008 financial year and accordingly, may not be reflective of the situation that may prevail in 2011 when transition to IFRS set of standards will be applicable to Indian companies, as those entities may have altered their compensation contracts.Practical implicationsIndian firms will be required to prepare financial statements based on IFRS set of standards w.e.f. April 2011. IFRS 2, share‐based payments is not yet adopted in India. Overall, the significance of accounting changes associated with the adoption of IFRS 2 may not be very alarming for Indian companies with ESO schemes.Originality/valueThis study attempts to enrich empirical research in the field and provides an insight into the potential contractual and valuation implication of the adoption of one of the IFRS set of standards on Indian firms and also provides contrary evidence of the role of growth characteristics in explaining the impact of expense recognition.

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Section: Literature Reviewmentioning

confidence: 99%

Stock option compensation

Dhar

2011

International Journal of Commerce and Management

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“…The valuation at fair value, rather than the intrinsic value, can better represent the essence of the transaction. 9 The reactions to the issue of the document were glowing and the exposure draft met strong opposition from large US companies, whose income on equal terms would have decreased significantly due to the higher costs accounted for (Freeman & Larsen, 1997). The need to propose a solution generally accepted by all led, in 1995, to the adoption of the "Statement of Financial Accounting Standards" (SFAS) No.…”

Section: Introduction Of the Principle Of Return On Equity (Roe) In Tmentioning

confidence: 99%

Does Accounting Choices Affect Financial Reporting Communication? Some Critical Consideration

Пунтилло¹,

Cavaliere²

2015

JMAA

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SFAS No. 123R: the controversy and its economic consequences

Schroeder

Schauer

2008

Managerial Auditing Journal

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PurposeTo review the evolution of SFAS No. 123R, “Accounting for Share Based Compensation,” and examine the economic consequences of the standard for the first group of filers impacted by its provisions.Design/methodology/approachThe sample was the population of firms in the Russell 3000 having June 30, fiscal year‐ends.FindingsThe study's findings suggest that the provisions of SFAS No. 123R remain controversial and that compliance with the standard had significant economic consequences for the sample of companies.Originality/valueThis study provides evidence that SFAS No. 123R had significant economic consequences but that some of the standard's effects differed from earlier predictions.

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The Markets Reaction To The FASB Stock-Based Compensation Project

Cited by 5 publications

References 0 publications

Stock option compensation

Stock option compensation

Does Accounting Choices Affect Financial Reporting Communication? Some Critical Consideration

SFAS No. 123R: the controversy and its economic consequences

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