THE IMPACT OF STATEMENT OF FINANCIAL ACCOUNTING STANDARD NUMBER 123 ON EQUITY PRICES OF COMPUTER SOFTWARE COMPANIES Article

Myring, M, Shortridge, RT, Bloom, R. (2003). THE IMPACT OF STATEMENT OF FINANCIAL ACCOUNTING STANDARD NUMBER 123 ON EQUITY PRICES OF COMPUTER SOFTWARE COMPANIES . Research in Accounting Regulation, 16(C), 121-144. 10.1016/S1052-0457(02)16007-3

cited authors

  • Myring, M; Shortridge, RT; Bloom, R

authors

abstract

  • Stock options have become a significant component of compensation for top executives. However, the appropriate method of accounting for stock options has been the subject of much debate. We document the history and current status of accounting for stock options including the issuance of Statement of Financial Accounting Standard No. 123, Accounting for Stock Based Compensation (SFAS 123). We then examine the stock market reaction to six events leading to the adoption of SFAS 123. The results from this test show that the market reacted negatively to the possibility that a standard would be adopted requiring stock options to be expensed. We also document that the magnitude of the market reaction is affected by debt contracting costs and political costs. These results suggest that the market reduces the value of firms who might violate their debt covenants and that firms with higher income are more subject to regulation by political entities. These results can add to the debate about accounting for stock options that has been revived in light of the Enron, WorldCom, and Tyco accounting scandals. © 2003 Elsevier Science Ltd. All rights reserved.

publication date

  • December 1, 2003

published in

Digital Object Identifier (DOI)

start page

  • 121

end page

  • 144

volume

  • 16

issue

  • C