Managers’ Stock-Based Compensation and Disclosures of High Proprietary Cost Information: An Investigation of US Biotech Firms

44 Pages Posted: 17 Jan 2018 Last revised: 2 Jul 2020

See all articles by Luminita Enache

Luminita Enache

University of Calgary; Dartmouth College - Tuck School of Business

Jae B. Kim

Lehigh University - College of Business & Economics

Date Written: April 25, 2019

Abstract

In this study, we examine whether CEOs’ stock-based compensation has any relationship with the disclosure of highly proprietary information. While prior studies suggest that stock-based compensation provides managers with an incentive to enhance their voluntary disclosures in general, we argue that it may not be the case when the proprietary cost is high. By using novel measures capturing the disclosure cost of high proprietary information and focusing on a biotech industry, we find that, on average, managers’ stock-based compensation is not significantly related with their disclosure of high proprietary cost information. More importantly, we find that a larger amount of stock-based compensation motivates managers to reveal less high proprietary cost information when they have a stronger need to protect their proprietary information; specifically, (i) when the stage of product development is earlier, (ii) when the corporate board mainly consists of directors with lack of sufficient knowledge on technology, and (iii) when firms are a leader in an industry. Overall, our study contributes to the literature by documenting that the role of stock-based compensation on managers’ disclosures can differ depending on the level of proprietary cost of information.

Keywords: executive compensation, stock-based compensation, disclosure, proprietary cost, biotech industry

JEL Classification: G34, J33, M41, M52

Suggested Citation

Enache, Luminita and Kim, Jae Bum, Managers’ Stock-Based Compensation and Disclosures of High Proprietary Cost Information: An Investigation of US Biotech Firms (April 25, 2019). Pacific accounting review, 2019, Vol.32(1), p.96-124 SSN: 0114-0582 , 2041-5494; DOI: 10.1108/PAR-10-2018-0078 , Available at SSRN: https://ssrn.com/abstract=3104132

Luminita Enache (Contact Author)

University of Calgary ( email )

140 Scanlon Green NW
Calgary, Alberta T3L1N3
Canada
5874389015 (Phone)

HOME PAGE: http://haskayne.ucalgary.ca/haskayne_info/profiles/luminita-enache

Dartmouth College - Tuck School of Business ( email )

140 Scanlon Green NW
Calgary, Alberta T3L1N3
Canada
5874389015 (Phone)

HOME PAGE: http://haskayne.ucalgary.ca/haskayne_info/profiles/luminita-enache

Jae Bum Kim

Lehigh University - College of Business & Economics

621 Taylor Street
Bethlehem, PA 18015
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
6
Abstract Views
414
PlumX Metrics