Financial Analyst Survey of SFAS 123(R) - Employee Stock Option Compensation Expense

34 Pages Posted: 21 Mar 2014

See all articles by Wendy Heltzer

Wendy Heltzer

DePaul University - College of Commerce

Mary Mindak

DePaul University

John E. McEnroe

DePaul University

Date Written: March 19, 2014

Abstract

This study examines practitioners’ perceptions of uses of stock option compensation expense. Specifically, Statement of Financial Accounting Standard (SFAS) No. 123(R) requires firms to report the estimated fair value of stock option compensation as an expense over the employees’ required service period. There has been much controversy surrounding this standard: academics, industry leaders and regulators question the reliability of estimating stock option value; consequently, the usefulness of reporting stock option expense in financial statements has been challenged. We provide insights into this debate by finding that financial analysts, on average, support the expensing of stock option expense. Further, approximately two-thirds of analysts use stock option expense in their forecast of short and long term earnings. We also find that analysts’ practices regarding stock option expense are not swayed by managements’ exclusion of stock option expense in earnings announcements. Together, our findings suggest that financial analysts believe stock option expense contains meaningful information about firm performance.

Keywords: Financial Analysts, Stock Options, Earnings Forecasts, Accounting Regulation

JEL Classification: M41, M48, J33

Suggested Citation

Heltzer, Wendy and Mindak, Mary and McEnroe, John E., Financial Analyst Survey of SFAS 123(R) - Employee Stock Option Compensation Expense (March 19, 2014). Journal of Accounting, Ethics and Public Policy, Vol. 15, No. 2, 2014, Available at SSRN: https://ssrn.com/abstract=2411642

Wendy Heltzer

DePaul University - College of Commerce ( email )

Chicago, IL
United States

Mary Mindak (Contact Author)

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

John E. McEnroe

DePaul University ( email )

School of Accountancy & Mgmt. Information Systems
1 East Jackson Blvd.
Chicago, IL 60604
United States
312-362-8748 (Phone)

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