Congressional Intervention in the Standard Setting Process: An Analysis of the Stock Option Accounting Reform Act of 2004

41 Pages Posted: 2 Feb 2005

See all articles by David B. Farber

David B. Farber

Indiana University Kelley School of Business Indianapolis

Marilyn F. Johnson

Michigan State University - Department of Accounting & Information Systems

Kathy R. Petroni

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management

Abstract

We examine H.R. 3574, the Stock Option Accounting Reform Act of 2004 (the Act), which sought to prevent the Financial Accounting Standards Board (FASB) from requiring the expensing of employee stock options at fair value. We find that employee stock option expense under the Act would be approximately two percent of what it would be under the FASB's preferred method. We also find that House members supporting the Act were more likely to be Republican, to be conservative, and to have received larger PAC contributions. Finally, the larger the impact of H.R. 3574 on the amount of stock option expense reported by the firm for employees who are not top five executives, the more contributions the firm's PAC made to House members and to members of the Committee that approved the Act. These results suggest that corporate opposition to the mandatory expensing of stock options at fair value is not driven solely by concerns of top five executives about the cost of recognizing their own options.

Keywords: PAC, H.R. 3574, employee stock options, standard setting, lobbying

JEL Classification: K20, M41, M44, G38

Suggested Citation

Farber, David B. and Johnson, Marilyn F. and Petroni, Kathy Ruby, Congressional Intervention in the Standard Setting Process: An Analysis of the Stock Option Accounting Reform Act of 2004. Accounting Horizons, Forthcoming, 2007. Available at SSRN: https://ssrn.com/abstract=646847 or http://dx.doi.org/10.2139/ssrn.646847

David B. Farber

Indiana University Kelley School of Business Indianapolis ( email )

801 W Michigan Ave
Indianapolis, IN 46202
United States

Marilyn F. Johnson

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)

Kathy Ruby Petroni (Contact Author)

Michigan State University - Eli Broad College of Business and Eli Broad Graduate School of Management ( email )

East Lansing, MI 48824-1121
United States
517-432-2924 (Phone)
517-432-1101 (Fax)

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