Evidence on differences between Recognition and Disclosure: A Comparison of Inputs to Estimate Fair Values of Employee Stock Options
48 Pages Posted: 7 Dec 2006 Last revised: 22 Feb 2012
Date Written: July 20, 2010
Abstract
I investigate reliability differences across recognition and disclosure regimes to shed light on differing incentives and reporting of employee stock option (ESO) fair values. I compare ESO fair values based on firm-reported inputs with ESO fair values based on benchmark inputs, estimated following authoritative guidance. On average, I find opportunism increases with recognition as compared with disclosure, and that it is associated with incentives to manage earnings. Despite the increase in opportunism, I find that accuracy does not decline for recognizers, and that accuracy differs across voluntary and mandatory recognition.
Keywords: reliability, input assumptions, FAS 123, FAS 123-R, recognition, disclosure
JEL Classification: J33, M41, M44, M45
Suggested Citation: Suggested Citation
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