Disclosure of the Fair Value of Executive Stock Options Granted to Top Executives

Abstract

This paper examines the determinants of a company's choice of disclosure informativeness. The specific context is the disclosure of the value of stock options granted to the top executives under the SEC's Regulation S-K (Item 403). We show that firms with executives who are excessively paid, poorly-performing firms, and firms which are substantially owned by insiders, are more likely to choose the less informative disclosure method. On the other hand, larger firms, firms which are widely covered by analysts, firms with high financial leverage, and those which voluntarily expense their executive options, are more likely to choose the more informative disclosure. We also provide evidence that firms with higher accounting integrity command a higher market valuation.

Keywords: Employee Stock Options; Regulation S-K, Corporate Governance, Option Expense Disclosure Methods

JEL Classification: M41