Recognition versus Disclosure of Stock Option Compensation: An Analysis of Judgements and Decisions of Nonprofessional Investors*/CONSTATER OU PRÉSENTER PAR VOIE DE NOTE LA RÉMUNÉRATION SOUS FORME D'OPTIONS D'ACHAT D'ACTIONS: UNE ANALYSE DES JUGEMENTS ET DES DÉCISIONS DES INVESTISSEURS NON PROFESSIONNELS

Given the importance of stock options in the aggregate compensation of chief executive officers and other firm employees in the 1990s and early 2000s, the International Accounting Standards Board issued an International Financial Reporting Standard on stock‐based payments on February 19, 2004, requiring that all share‐based payment transactions be recognized at fair value in entities' financial statements. The Canadian Institute of Chartered Accountants' Accounting Standards Board had already agreed to this principle and amended section 3870 of the CICA Handbook (stock‐based compensation) for financial periods beginning on or after January 1, 2004, making Canada the first major jurisdiction to require all public companies to expense employee stock‐based compensation awards. The revised section eliminated the possibility of disclosing pro forma net income and earnings per share only by way of a note. This research, conducted as a between‐subjects experiment with executive MBA students as nonprofessional investors, examines whether changes in the way stock option compensation is reported (recognition as an expense in the income statement or note disclosure of pro forma net income and earnings per share) affect financial statement users' judgements and investment decisions. Our results indicate that, consistent with the functional fixation hypothesis, the reporting method does indeed significantly influence subjects' judgement of the expected stock price direction, but has no material influence on their investment decisions.     

Usefulness of comprehensive income reporting in Canada

In January 2005 the Canadian Accounting Standards Board (AcSB) issued three new accounting standards that require Canadian firms to mark-to-market certain financial assets and liabilities and recognize the holding gains and losses related to these items as other comprehensive income or as part of net income. The Board’s objectives for issuing the new standards are (i) to harmonize Canadian GAAP with US and International GAAP, (ii) to enhance the transparency and usefulness of financial statements, and (iii) to keep pace with changes in accounting standards in other countries that are moving towards fair value accounting. This paper investigates empirically whether requiring Canadian companies to report comprehensive income and its components provides the securities market with incremental value-relevant information over the traditional historical-cost earnings approach.Previous empirical studies provide mixed evidence on the value relevance of other comprehensive income and its components. This mixed evidence may be attributed partially to the use of as if methodology to construct an ex-ante measure of other comprehensive income prior to the implementation of SFAS 130, which introduces measurement error. In contrast, this study uses actual data on other comprehensive income for a sample of Canadian firms cross-listed in the US in the period 1998–2003. We find evidence that available-for-sale and cash flow hedges components are significantly associated with price and market returns. We also find that aggregate comprehensive income is more strongly associated (in terms of explanatory power) with both stock price and returns compared to net income. However, we find that net income is a better predictor of future net income relative to comprehensive income. Our findings suggest that mandating all Canadian firms to adopt the new accounting standards is expected to enhance the usefulness of financial statements. Our findings, therefore, should be of interest to Canadian accounting policy makers as they provide ex-ante evidence on the potential usefulness of mandating firms to report comprehensive income and the components of other comprehensive income in their financial statements.     

Stock option compensation: impact of expense recognition on performance indicators of non-domestic companies listed in the U.S.

The IFRS 2, Share-based Payment, requires that companies recognize the fair value of employee stock options as an expense. To ascertain the impact recognition will have on companies domiciled in countries subject to accounting standards issued by the IASB’s liaison standard setting partners, this research examines the pro forma stock option disclosures provided in Form 20-F by Australian, British, Canadian, French, German, Japanese, and Irish companies.The findings indicate the average impact of expense recognition on diluted EPS will be approximately 40% and will be material at a 5% level for the majority of the companies. The impact varies significantly by country. On average the annual expense recognized will be approximately 15% of beginning stockholders equity. For the majority of the companies, the charge will represent less than 1% of beginning equity. Again the impact varies significantly by country.The findings indicate that absent requirements that stock compensation expense be recognized, a material upward bias will be reflected in performance indicators of many non-U.S. companies and cross-border comparability will be impaired. Since our analysis is based solely on data for the year 2000 for companies domiciled in seven countries, future research will be needed to ascertain the impact of expense recognition on a broader range of companies reporting under IFRS 2.     

公允价值计量与企业利润操纵的关系及防范研究

我国2007年会计准则恢复了公允价值计量模式,在新会计准则中涉及会计要素计量的有30项,其中有21项不同程度的应用了公允价值计量属性。2014年出台了财政部发布《企业会计准则第39号--公允价值计量》准则（财会[2014]6号）,这不仅体现了我国会计准则与世界接轨的趋势,也反映了公允价值这一计量模式在现代社会经济中的的重要性。但随着公允价值得以恢复,企业利用公允价值进行利润操纵的现象时有发生,并且也给某些公司特别是上市公司带来严重损失。     

会计改革与会计信息质量——来自中国证券市场的经验证据

本文以股份公司会计制度改革为例 ,从会计改革的目标出发 ,运用会计信息的市场反应 ,分别从信息观和计量观的角度 ,就会计信息的质量进行定量研究 ,对其改革效果做出实证性的评价 ,籍此观察《企业会计制度》改革的合理性。研究表明会计信息质量的提高不仅有赖于会计改革建立高质量的会计准则 ,而且离不开执行机制的改革提供有效的准则执行支撑系统。《企业会计制度》面对缺乏效率的准则执行机制 ,出台尽可能回避按“公允价值”计价的改革政策 ,无疑是考虑会计准则与经济环境的融合性而做出的明智之举     

Innovation in Stock Exchanges: Driving ESG Disclosure and Performance

Stock exchanges are in a unique position to promote ESG transparency and leverage their institutional capacity to build more sustainable capital markets. To facilitate the quick uptake of material ESG disclosure and raise the quality and comparability of the data, the Athens Stock Exchange has created ESG guidelines for listed companies that will be published in the summer of 2019. One important feature of the guidelines is their degree of sectoral specificity and emphasis on materiality. The guidelines and supporting metrics they propose are based on reporting practices endorsed by international sustainability standards like the SASB's industry standards. This materiality‐oriented approach will help issuers focus on the sustainability value drivers inherent in their business, and so ensure that corporate ESG disclosures satisfy the demand of investors for comparable quantitative and accounting metrics that help companies communicate their commitment to long‐term value creation.     

Risk-taking incentives of executive stock options and the asset substitution problem

Various theoretical models show that managerial compensation schemes can reduce the distortionary effects of financial leverage. There is mixed evidence as to whether highly levered firms offer less stock‐based compensation, a common prediction of such models. Both the theoretical and empirical research, however, have overlooked the leverage provided by executive stock options. In principle, adjusting the exercise prices of executive stock options can mitigate the risk incentive effects of financial leverage. We show that the near‐universal practice of setting option exercise prices near the prevailing stock price at the date of grant effectively undoes most of the effects of financial leverage. In a large cross‐sectional sample of Canadian option‐granting firms, we find evidence that executives' incentives to take equity risk are negatively rather than positively related to the leverage of their employers.     

Has Adoption of IFRS Increased Non–North American Institutional Investment in the Canadian Stock Markets?

We investigate whether non–North American (non‐NA) institutional investment in firms listed on the Canadian stock markets increased between the pre‐ and post‐IFRS adoption periods relative to such investment in firms listed on the U.S. stock markets. Prior to IFRS adoption, Canada had high‐quality financial reporting standards that were similar to the U.S. standards. As consequences of IFRS adoption, Canadian financial statements became more comparable with European and other IFRS country financial statements and less comparable with neighboring U.S. financial statements. Thus, a question of interest is whether the enhanced comparability with non‐NA companies was beneficial in terms of attracting non‐NA investment to Canadian companies versus U.S. companies. We find that there was no significant change in non‐NA institutional investment in Canadian firms relative to U.S. firms for the very largest (fifth quintile) and for smaller (first, second, and third quintiles) Canadian companies. However, intermediate‐sized Canadian companies in the fourth size quintile lost non‐NA institutional investment relative to their U.S. peer companies, suggesting that non‐NA investors cared more about comparability with U.S. peer companies than non‐NA peer companies for companies in this size quintile.     

金融工具公允价值信息的价值相关性

本文以会计信息决策有用性的计量观为基础,通过实证方法对比分析了新企业会计准则实施前后,公允价值是否改进会计信息对公司股票市场价格的影响,以及金融工具的公允价值信息与历史成本对公司股票市场价格的影响;新准则实施后公允价值变动损益对公司的股票市场价值的影响。研究结果表明:在引入公允价值计量属性后,盈余信息和净资产账面价值对模型的整体解释能力有所提高;公允价值计量的金融工具具有显著的增量价值相关性和相对价值相关性,投资者在投资决策时已经开始考虑公允价值因素,金融工具公允价值信息具有价值相关性。     

Expensing stock options: a fair-value approach

Now that companies such as General Electric and Citigroup have accepted the premise that employee stock options are an expense, the debate is shifting from whether to report options on income statements to how to report them. The authors present a new accounting mechanism that maintains the rationale underlying stock option expensing while addressing critics' concerns about measurement error and the lack of reconciliation to actual experience. A procedure they call fair-value expensing adjusts and eventually reconciles cost estimates made at grant date with subsequent changes in the value of the options, and it does so in a way that eliminates forecasting and measurement errors over time. The method captures the chief characteristic of stock option compensation--that employees receive part of their compensation in the form of a contingent claim on the value they are helping to produce. The mechanism involves creating entries on both the asset and equity sides of the balance sheet. On the asset side, companies create a prepaid-compensation account equal to the estimated cost of the options granted; on the owners'-equity side, they create a paid-in capital stock-option account for the same amount. The prepaid-compensation account is then expensed through the income statement, and the stock option account is adjusted on the balance sheet to reflect changes in the estimated fair value of the granted options. The amortization of prepaid compensation is added to the change in the option grant's value to provide the total reported expense of the options grant for the year. At the end of the vesting period, the company uses the fair value of the vested option to make a final adjustment on the income statement to reconcile any difference between that fair value and the total of the amounts already reported.     

会计信息披露政府监管的经济后果——来自中国证券市场的经验证据

本文选取会计稳健性作为衡量会计信息质量指标,运用股票收益模型和盈余持续性模型来考察深沪证券交易所设立的诚信档案制度对上市公司会计信息质量的改善程度,籍此评价政府有关机构对我国证券市场会计监管措施的效果。研究结果表明:诚信档案制度对我国上市公司的会计信息质量提高具有一定的促进作用,但作用效果并不十分显著。这说明,我国政府部门对证券市场实施的一系列会计监管措施,在一定程度上能够发挥作用,从而达到缓解会计信息失真,完善市场机制的目的。     

会计稳健性对盈余价值相关性的影响研究——基于公允价值计量的视角

以2001～2008年我国A股上市公司为研究样本,基于公允价值计量全面引入的视角,考察了会计稳健性对盈余价值相关性的影响,实证发现:会计稳健性显著降低了会计盈余的价值相关性,而公允价值计量显著弱化了会计稳健性对于盈余价值相关性的负向影响.研究结果表明,对于我国上市公司而言,稳健的会计政策并不意味着高质量的财务报告信息.公允价值与会计稳健性适度藕合,可以弥补会计稳健性的不足,有利于提高会计信息质量.     

A Better Way to Measure Operating Performance (or Why the EVA Math Really Matters)

Most companies rely heavily on earnings to measure operating performance, but earnings growth has at least two important weaknesses as a proxy for investor wealth. Current earnings can come at the expense of future earnings through, for example, short‐sighted cutbacks in investment, including spending on R&D. But growth in EPS can also be achieved by investing more capital with projected rates of return that, although well below the cost of capital, are higher than the after‐tax cost of debt. Stock compensation has been the conventional solution to the first problem because it's a discounted cash flow value that is assumed to discourage actions that sacrifice future earnings. Economic profit—in its most popular manifestation, EVA—has been the conventional solution to the second problem with earnings because it includes a capital charge that penalizes low‐return investment. But neither of these conventional solutions appears to work very well in practice. Stock compensation isn't tied to business unit performance—and often fails to provide the intended incentives for the (many) corporate managers who believe that meeting current consensus earnings is more important than investing to maintain future earnings. EVA doesn't work well when new investments take time to become profitable because the higher capital charge comes before the related income. In this article, the author presents two new operating performance measures that are likely to work better than either earnings or EVA because they reflect the value that can be lost either through corporate underinvestment or overinvestment designed to increase current earnings. Both of these new measures are based on the math that ties EVA to discounted cash flow value, particularly its division of current corporate market values into two components: “current operations value” and “future growth value.” The key to the effectiveness of the new measures in explaining changes in company stock prices and market values is a statistical model of changes in future growth value that captures the expected effects of significant increases in current investment in R&D and advertising on future profits and value.     

Valuing executive stock options: performance hurdles, early exercise and stochastic volatility

Accounting standards require companies to assess the fair value of any stock options granted to executives and employees. We develop a model for accurately valuing executive and employee stock options, focusing on performance hurdles, early exercise and uncertain volatility. We apply the model in two case studies and show that properly computed fair values can be significantly lower than traditional Black–Scholes values. We then explore the implications for pay-for-performance sensitivity and the design of effective share-based incentive schemes. We find that performance hurdles can require a much greater fraction of total compensation to be a fixed salary, if pre-existing incentive levels are to be maintained.     

Accounting‐Based Probabilistic Prediction of ROE,the Residual Income Valuation Model and the Assessment of Mispricing in the Swedish Stock Market

Using Swedish stock market data, this study investigates whether an investment strategy based on publicly available accounting information can generate abnormal investment returns. The strategy involves two steps. First, an accounting‐based probabilistic prediction model of changes in the medium‐term book return on owners' equity (ROE) is estimated. Second, market expectations of changes in medium‐term ROE are assessed through observed stock prices and the residual income valuation model. Stock market positions over 36‐month holding periods are taken when the accounting‐based predictions of ROE and the market expectations differ. Over the period 1983–2003, the investment strategy generated values of Jensen's alpha corresponding to an average monthly excess return for a hedge position of up to 0.8% for a sample of manufacturing companies. In the main this hedge return was caused by strong positive returns to the long positions, and additional analyses show that the returns appear to have been affected by a positive market sentiment bias (i.e., positive ROE surprises being associated with stronger price reactions than negative ROE surprises) making out‐of‐sample inferences somewhat dubious. Furthermore, most of the investment returns accrued over holding periods up to around 1995, with no indications of market mispricing over the last third (1995–2003) of the investment period. The empirical results are consistent with market investors having become more sophisticated in their use of publicly available accounting information over time.     

股权结构影响下的上市公司融资倾向研究

本文选取深沪两市的900家上市公司为样本,以2001-2004年的财务及相关数据为基础,从我国上市公司特殊的股权结构出发,运用一般描述性统计分析、偏相关分析、独立样本T检验等方法,分析我国上市公司股权结构与融资倾向之间的关系,以探究在相同市场环境中,不同的股权结构安排是否会导致其融资倾向的差异性。研究结果表明,股权结构对上市公司融资倾向具有显著的影响,不同股权结构安排下的公司有不同的融资倾向,特殊的股权结构是造成我国上市公司融资结构不合理的主要因素。     

Can information confusion caused by the financing model of new economy companies be eliminated?

New economy companies often use convertible and redeemable preferred shares with equity and debt characteristics as financing tools to reduce risk during their early stages of growth. According to relevant accounting standards, such preferred shares should be classified as financial liabilities and measured at fair value, with changes in fair value recognized in profit or loss. This can lead to confusing financial information: the better a company’s development prospects, the higher its redemption or conversion price and loss, which can result in a large negative net asset value. A successful initial public offering, however, could offset large losses and negative net asset value. Following the development of accounting standards, this article thoroughly analyzes various proposals to modify relevant accounting standards and eliminate confusing information. This article also proposes possible problems and solutions as a reference for accounting standard setters and the various stakeholders in new economy companies.     

An IFRS 2 and FASB 123 (R) Compatible Model for the Valuation of Employee Stock Options

In this paper, we show how employee stock options can be valued under the new reporting standards IFRS 2 and FASB 123 (revised) for share-based payments. Both standards require companies to expense employee stock options at fair value. We propose a new valuation model, referred to as Enhanced American model, that complies with the new standards and produces fair values often lower than those generated by traditional models such as the Black–Scholes model or the adjusted Black–Scholes model. We also provide a sensitivity analysis of model input parameters and analyze the impact of the parameters on the fair value of the option. The valuation of employee stock options requires an accurate estimation of the exercise behavior. We show how the exercise behavior can be modeled in a binomial tree and demonstrate the relevance of the input parameters in the calibration of the model to an estimated expected life of the option. JEL Classification G13, G30     

信息披露考核降低了股价崩盘风险吗？

深交所自2001年起对于上市公司的信息披露工作进行考核。本文从信息透明度的 角度,利用深交所上市公司信息披露考核数据,考察信息披露质量对股价崩盘风险的影响。研 究发现：（1）深圳证券交易所的信息披露考核对于股价崩盘风险有显著影响,整体来看上市 公司的信息披露质量与股价崩盘风险存在显著的负向关系;（2）对于经营业绩较差的公司而 言,信息披露质量与股价崩盘风险的负向关系更加显著;（3）相对于非主板公司而言,信息披 露质量对主板公司的股价崩盘风险的抑制作用更加显著。     

Value Relevance of Fair Values—Empirical Evidence of the Impact of Market Volatility

This study examines empirically the effects of market volatility on the value relevance of fair values. Using the modified Ohlson model ( 1995 ) and a sample of U.S. financial companies for the period of 2008 to 2013, this study shows that fair values are priced at a significant discount when market volatility is high. Song ( 2013 ) shows analytically that the effectiveness of fair value accounting is negatively affected by market volatility. Findings of the current study suggest that investors understand the effects of market volatility on fair values and price them accordingly. The study extends the research on the determinants of the usefulness of fair values by looking beyond factors associated with the reliability of estimated fair values (Level 2 and Level 3 fair values). This study has practical implications: current accounting standards for fair value measurement acknowledge the limitations of the market as a source of fair values by offering a three‐level fair value hierarchy with provisions for fair values to deviate from market prices. Findings of this study shed light on a previously little studied factor, that is, market volatility, on the usefulness of fair values.