The Role of Accounting in the Design of CEO Equity Compensation

Accounting Review, March 2007

Posted: 20 Sep 2006

See all articles by Mary Ellen Carter

Mary Ellen Carter

Boston College - Department of Accounting

Luann J. Lynch

University of Virginia - Darden School of Business

A. Irem Tuna

London Business School

Abstract

We examine the role of accounting in CEO equity compensation design. For a sample of ExecuComp firms in 1995-2001, we find that financial reporting concerns are positively related to stock option use and total compensation, and negatively related to the use of restricted stock. We confirm our findings by examining changes in CEO compensation in firms that begin expensing options in 2002 or 2003. We find that these firms reduce their option use and increase their restricted stock use after starting to expense options but exhibit no decrease in total compensation. Taken together, our analyses suggest that favorable accounting treatment for options led to a higher use of options and lower use of restricted stock than would have been the case absent accounting considerations.

Keywords: executive compensation, financial reporting

JEL Classification: J33, M41, M43, M44, M52

Suggested Citation

Carter, Mary Ellen and Lynch, Luann J. and Tuna, Ayse Irem, The Role of Accounting in the Design of CEO Equity Compensation. Accounting Review, March 2007. Available at SSRN: https://ssrn.com/abstract=931695

Mary Ellen Carter (Contact Author)

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Luann J. Lynch

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4721 (Phone)
434-243-7677 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lynch.htm

Ayse Irem Tuna

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,913
PlumX Metrics