Managing Stock Option Expense: The Manipulation of Option‐Pricing Model Assumptions*

This paper examines whether firms that voluntarily recognize stock option expense in their financial statements manage that expense downward more than firms that do not recognize the expense by adjusting option‐pricing model assumptions. To examine this issue, I collect option‐pricing model assumptions from fiscal year 2002 for both a sample of firms that voluntarily recognize stock option expense (“recognizing firms”) and a sample of control firms that do not (“disclosing firms”). The empirical results suggest that recognizing firms manage the recognized stock‐based compensation expense reported in their financial statements downward more than do firms that only disclose the expense. Additional analyses reveal that recognizing firms assume a lower level of volatility than disclosing firms in the option‐pricing model calculations; however, I find no evidence that recognizing firms manage the dividend yield and risk‐free interest rate assumptions more than disclosing firms. The Financial Accounting Standards Board (FASB) recently issued Statement of Financial Accounting Standards No. 123(R), which requires the expensing of the fair value of stock options, so these results may be of interest to capital‐market participants and the FASB as they assess the reliability of stock option expense as determined by option‐pricing models.     

Adverse event-related costs for systemic metastatic breast cancer treatment among female Medicaid beneficiaries

Objective: This retrospective study compared the real-world incidence and costs of systemic treatment-related adverse events (AEs) in patients with metastatic breast cancer in a Medicaid population.

Methods: Insurance claims data for adult women who received biologic or chemotherapy (± hormonal therapy) for metastatic breast cancer between 2006–2013 were extracted from the Truven Health MarketScan^® Multi-State Medicaid database. Incidence of AEs (per 100 person years) and average monthly AE-related healthcare costs (per-patient-per-month) during each line of therapy (first or later lines) were estimated. The association between AEs and total all-cause healthcare costs was estimated using multivariable regression.

Results: A total of 729 metastatic breast cancer patients were analyzed. Hematological (202.3 per 100 person years) and constitutional AEs (289.6 per 100 person years) were the most common class of AEs reported. Unadjusted per-patient-per-month AE-related expenditure by class were highest for hematological AEs ($1524), followed by gastrointestinal ($839) and constitutional AEs ($795), with anemia ($942), nausea/vomiting ($699), and leukopenia/neutropenia ($550) having incurred the highest total AE-related costs. Adjusted total all-cause monthly costs increased with the number of AEs ($19,701 for >7 AEs, $16,264 for 4???6 AEs, and $13,731 for 1???3 AEs) compared to no AEs ($5908) (all p?Conclusions: Among metastatic breast cancer patients treated with systemic therapy in a Medicaid population, AEs were associated with significant increases in costs, which increased with the number of AEs experienced. Therapies associated with a lower incidence of AEs may reduce cost burden and improve patient outcomes.     

Rate regulation of U.S. electric utilities: Does it deter earnings management?

This study is the first broadly-based examination of earnings management within the rate-regulated U.S. electric utility industry. In a three-phase analysis using extant discretionary accrual models in the earnings-management literature, we provide evidence that: (1) on average, rate regulation appears to deter earnings management; (2) relaxing rate regulation (i.e., deregulation) tends to increase the potential for earnings management; and (3) in those situations in which utilities are seeking increased rates from regulators, sufficient accounting latitude exists under GAAP to allow utility management to depress reported earnings. As this last finding may persuade regulators to approve a utility's rate request, triggering increased electricity rates, the potential exists for wealth transfers between “captured” rate-paying customers and shareholders. The study's results also provide for the first time empirical justification for accounting researchers to exclude rate-regulated firms from cross-sectional, inter-industry research designs examining discretionary accruals.     

Environmental R&D and the uncertainty of future earnings

This paper examines whether the variability in the future earnings stream generated by the investment in environmentally-related R&D projects is different than that created by the investment in other R&D projects. To carry out this investigation, I decompose total R&D expenditures into two components: those related to R&D projects aimed at reducing the firm’s costs to comply with environmental legislation (i.e., the environmental component), and those related to all other R&D projects, which are focused on increasing the firm’s revenues and/or decreasing its other operating costs (i.e., the residual component). As predicted, I find that the environmental component of R&D expenditures contributes significantly less to the variability of future earnings than the residual component.     

Taking time to understand theory

Purpose of the paper and literature addressedThe purpose of this paper is to examine how one of the most cited theories in sociology, structuration theory, might help inform our understanding of time in business networks. Structuration theory deals with the creation and maintenance of ideas and structures as well as with change and continuity processes. It defines a social system as any set of practices, patterns of interaction and social relationships that are relatively enduring.Research methodThis is a conceptual paper.Main contributionThis paper outlines improved theoretical and methodological bases in industrial marketing research, which specifically takes into consideration time. This new understanding draws upon Giddens structuration theory, and more recent critiques of his work.