Market reactions to announcements to expense options |
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| Authors: | Larry J Prather Ting-Heng Chu Paul E Bayes |
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| Institution: | (1) John Massey School of Business, Southeastern Oklahoma State University, Durant, OK 74701, USA;(2) College of Business and Technology, East Tennessee State University, Box 70686, Johnson City, TN 37614, USA |
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| Abstract: | The joint hypotheses of informationally efficient markets, transparent financial statements, and adequate accounting disclosure
suggest that announcements of changes in the accounting treatment of employee stock options from footnote disclosure to expense
recognition should not trigger stock price reactions because free-cash-flows will not change. Event study results from a sample
of 241 firms that announce such changes reveal statistically significant negative price changes followed by positive price
changes about equal in magnitude. We propose the learning, sophisticated investor, neglected firm, and firm size hypotheses
to explain the observed announcement-period stock price reaction.
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| Keywords: | Stock Options Mandatory Expensing |
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