The Consequences of the Fasb's 1998 Proposal on Accounting for Stock Option Repricing

Posted: 2 Dec 2002

See all articles by Mary Ellen Carter

Mary Ellen Carter

Boston College - Department of Accounting

Luann J. Lynch

University of Virginia - Darden School of Business

Abstract

We examine repricing activity surrounding the FASB's 1998 announcement regarding accounting for repriced options. We find that repricing increases during, and decreases after, the 12-day window between the announcement and proposed effective dates, consistent with firms timing repricings to avoid recording an expense. We find that firms experiencing increasing earnings patterns, firms with earnings around zero, and growth firms are more likely to reprice in the window, but having repriced recently decreases the likelihood of doing so. The evidence suggests that firms trade off financial reporting benefits against reputation costs in decisions to time repricings to get favorable accounting treatment.

Keywords: Executive Compensation, Accounting Standards, Accounting Choice, Stock Option Repricing

JEL Classification: M41, M44, J33

Suggested Citation

Carter, Mary Ellen and Lynch, Luann J., The Consequences of the Fasb's 1998 Proposal on Accounting for Stock Option Repricing. Available at SSRN: https://ssrn.com/abstract=350881

Mary Ellen Carter (Contact Author)

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Luann J. Lynch

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4721 (Phone)
434-243-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lynch.htm

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