The Role of Tax Regulation and Compensation Contracts in the Decision to Voluntarily Expense Employee Stock Options

24 Pages Posted: 5 Oct 2010

See all articles by Walter G. Blacconiere

Walter G. Blacconiere

Indiana University - Kelley School of Business - Department of Accounting

Marilyn F. Johnson

Michigan State University - Department of Accounting & Information Systems

Melissa F. Lewis-Western

Brigham Young University - Marriott School of Business

Date Written: 2007

Abstract

We show that firms with executive bonuses that qualify for deduction under Internal Revenue Code Section 162(m) were less likely to expense stock option compensation (SOC) in 2002. Additionally, the more likely it is that a qualified firm will incur re-contracting costs, the less likely it is that the firm will expense SOC. CEOs of qualified firms that also expense SOC receive smaller bonuses than CEOs of expensing firms that are not qualified under 162(m), and the lower 162(m) bonuses are not offset by higher SOC. Our results suggest that 162(m) tax incentives are an important determinant of the decision to expense SOC.

Keywords: Management contracting, taxes; stock options, shareholder voting, Section 162(m)

JEL Classification: M4, J33, H25, G38

Suggested Citation

Blacconiere, Walter G. and Johnson, Marilyn F. and Lewis-Western, Melissa Fay, The Role of Tax Regulation and Compensation Contracts in the Decision to Voluntarily Expense Employee Stock Options (2007). Journal of Accounting & Economics, Vol. 46, 2008. Available at SSRN: https://ssrn.com/abstract=1028036

Walter G. Blacconiere

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2653 (Phone)
812-855-4985 (Fax)

Marilyn F. Johnson (Contact Author)

Michigan State University - Department of Accounting & Information Systems ( email )

270 North Business Complex
East Lansing, MI 48824-1034
United States
517-432-0152 (Phone)
517-432-1101 (Fax)

Melissa Fay Lewis-Western

Brigham Young University - Marriott School of Business ( email )

Provo, UT 84602
United States
801-703-8426 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
75
rank
309,757
Abstract Views
945
PlumX Metrics