Abstract

http://ssrn.com/abstract=1545602
 
 

References (42)



 
 

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Stock Option Grant Vesting Terms: Economic and Financial Reporting Determinants


Brian D. Cadman


University of Utah - David Eccles School of Business

Tjomme O. Rusticus


London Business School; Northwestern University - Kellogg School of Management

Jayanthi Sunder


University of Arizona - Eller College of Management

July 1, 2012

Review of Accounting Studies, Forthcoming

Abstract:     
Option grant vesting terms are a contractual provision that is shaped by accounting standards and other economic factors. We examine the effect of accounting standards, specifically SFAS 123(R), on the vesting terms of stock option grants while also modeling other economic determinants of this contract feature. We document significant variation in stock option grant vesting periods and patterns suggesting that firms actively choose vesting terms. Consistent with financial reporting incentives influencing contract design, we find that firms simultaneously lengthen vesting periods and alter vesting patterns after the adoption of SFAS 123(R). The changes in vesting patterns are consistent with firms trying to defer recognition of the option expense, while limiting the incremental risk imposed on the CEO. In addition, we find that vesting schedules are longer in growth firms where lengthening the executive’s investment horizon is more important and that firms with more powerful CEOs and weaker governance grant options with shorter vesting periods.

Number of Pages in PDF File: 50

Keywords: Executive Compensation, Stock Option Vesting Periods, Effects of SFAS 123(R)

JEL Classification: G30, J33, M41, M42

Accepted Paper Series


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Date posted: February 1, 2010 ; Last revised: November 20, 2012

Suggested Citation

Cadman, Brian D. and Rusticus, Tjomme O. and Sunder, Jayanthi, Stock Option Grant Vesting Terms: Economic and Financial Reporting Determinants (July 1, 2012). Review of Accounting Studies, Forthcoming. Available at SSRN: http://ssrn.com/abstract=1545602 or http://dx.doi.org/10.2139/ssrn.1545602

Contact Information

Brian D. Cadman
University of Utah - David Eccles School of Business ( email )
1645 Campus Center Drive
Salt Lake City, UT 84112
United States
801-585-9517 (Phone)
HOME PAGE: http://www.business.utah.edu/bio/briancadman
Tjomme O. Rusticus (Contact Author)
London Business School ( email )
Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
Jayanthi Sunder
University of Arizona - Eller College of Management ( email )
Tucson, AZ 85721
United States
520-626-8489 (Phone)
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