Contagion of Accounting Methods: Evidence from Stock Option Expensing
Posted: 6 Jul 2013
Date Written: April 8, 2010
I examine how a ﬁrm’s accounting methods can be inﬂuenced by the choices of other ﬁrms, which I label contagion. I model accounting method choice as a combination of intrinsic propensities to adopt a method and contagion effects. I predict contagion of accounting methods occurs for two reasons: (1) adoption decisions of other ﬁrms are informative for the adoption decision, and (2) prior adoptions change the net beneﬁts of the decision. I test these predictions in the stock option expensing setting where ﬁrms had the choice to use the intrinsic or fair value method. Using a ﬁrm-level diffusion model, I document evidence consistent with my predictions.
Keywords: Accounting choice, Contagion, Diffusion, Stock options
JEL Classification: M40, M41
Suggested Citation: Suggested Citation