اثر انگیزه های سهام محور و مکانیسم های حاکمیتی بر افشای داوطلبانه دارایی های نامشهود

The purpose of this study is to investigate the role of stock-based incentives in encouraging more voluntary disclosures about firm-specific intangibles. I also examine whether corporate governance, previously found to be related to voluntary disclosures, is a complement to or substitute for stock-based incentives. Using content analysis of annual reports of a sample of high-tech firms, I find that stock-based incentives are positively associated with firms' voluntary disclosures about intangibles. With regard to the effect of governance mechanisms, I find that corporate governance does not have a relationship with disclosures when stock-based incentives are low. On the other hand, better governance will strengthen the positive effect of stock-based incentives on disclosures, suggesting that governance and incentives mechanisms are complements instead of substitutes. The results also show that this complementary effect primarily results from the internal monitoring provided by the board of directors.

The separation of ownership and control in the modern corporation has created serious agency problems and governance challenges for shareholders. One way to align managers' decisions with shareholders' interests is through compensation systems. Researchers argue that top managers are only motivated to act in shareholders' best interests if they are offered incentive contracts that link their wealth to changes in firm value (Jensen & Murphy, 1990). Recent trend in executive compensation practices of US companies has shown a significant increase in the use of stock options and restricted stock awards as an integral part of executives' compensation package (Hall and Liebman, 1998, August and Murphy, 1999). The use of equity-based compensation seems to be consistent with motivating managers to act on behalf of shareholders because the agent's wealth is directly tied to the company's stock performance. Many studies have examined the effect of different types of compensation plans on managerial incentives as well as the determinants of firms' compensation structures (e.g., Lippert and Moore, 1994, Yermack, 1995 and Ryan and Wiggins, 2001). The purpose of this study is to investigate the role of stock-based incentives in encouraging more voluntary disclosures about firm-specific intangibles. Prior literature suggests that intangibles-intensive firms tend to experience significant information asymmetry due to scarce public disclosures about their intangibles, but there is limited research studying the mechanisms that help mitigate this problem. Intangible assets such as a skilled workforce, brand names, know-how, and organizational capabilities have been recognized to be the most significant value-creation factor in today's new economy. However, there are increasing concerns about the deficiencies of information about intangible assets in corporate financial reports under current accounting rules (e.g., Lev & Zarowin, 1999). This lack of public information has been attributed to resulting in misevaluation by capital market participants as well as misallocation of resources within companies (Lev, 2004). Therefore, it is important to understand whether incentives mechanisms could motivate managers to disclose more information about intangibles-related activities. I consider intangibles a valuable setting to examine the relation between stock-based incentives and voluntary disclosures because intangibles-related activities have been shown to be a significant source of private information (e.g., Aboody & Lev, 2000). Managers may be reluctant to reveal their private information because of proprietary cost concerns (Verrecchia, 2001) or because of uncertainty about the capital market's response to disclosures (Nagar, 1999). Since prior compensation research documents that intangibles-intensive firms use more equity-based compensation (e.g., Clinch, 1991 and Kole, 1997), it is important to enhance our understanding of whether higher stock-based incentives also encourage firms to provide more voluntary disclosures about their intangibles. Moreover, prior literature has well documented the role of corporate governance in alleviating agency problems. More specifically, better governance can reduce opportunistic behavior in financial reporting (e.g., Beasley, 1996 and Klein, 2002) and encourage more management earnings forecasts (Ajinkya et al., 2005 and Karamanou and Vafeas, 2005). Nevertheless, the interaction effect between governance mechanisms and incentive contracts is not clear. Therefore, this study also answers the call from Hermalin and Weisbach (1991) to investigate whether corporate governance and stock-based incentives are complements or substitutes. Since intangibles are industry-specific, the sample used in this study is concentrated on the high-tech sector consisting of firms in the pharmaceutical, electronics, and software industries. The results support the hypothesis that stock-based incentives are positively related to intangibles-related voluntary disclosures. Further, this positive association is strengthened by better governance. In particular, corporate governance, especially the board structure, and stock-based incentives complement rather than substitute each other in enhancing firms' voluntary disclosures about intangibles. This study contributes to the literature along several avenues. First, no prior research has conducted a comprehensive study on firms' voluntary disclosures about firm-specific intangibles. Therefore, this study will provide insights on what firms disclose about their intangibles-related activities which are documented to be a significant source of private information. Second, I augment the compensation literature by establishing the link between stock-based incentives and voluntary disclosures. Although this relationship was documented in Nagar, Nanda, and Wysocki (2003), their study does not address intangibles-specific disclosures nor do they appropriately address the endogeneity of stock-based compensation (see Barth, 2003). Third, previous literature on corporate governance generally examines the direct effect of monitoring mechanisms provided by the board of directors, outside blockholders and institutional investors, but no study has considered the interaction effect between alternative governance mechanisms. Since both compensation contracts and governance structures are designed to alleviate agency problems, it is important to understand whether the incentives and monitoring mechanisms complement or substitute each other in influencing managerial behavior. The remainder of the study is organized as follows. Section 2 reviews related literature and develops research hypothesis. Section 3 describes the research design, including variable measurement and empirical models. Data and sample are presented in Section 4. Section 5 discusses the empirical results and Section 6 provides concluding remarks.

This paper studies whether stock-based incentives encourage more voluntary disclosures about firms' intangibles. Intangibles are a significant source of private information, hence understanding the mechanism to reduce this information asymmetry would be beneficial to both corporations and investors. I also examine whether corporate governance, previously found to be related to voluntary disclosures, is a complement to or substitute for stock-based incentives. Using content analysis of annual reports of a sample of high-tech firms, I find that stock-based incentives are positively associated with firms' voluntary disclosures about intangibles. A further decomposition of stock-based incentives indicates that this positive relationship comes from both stock options and restricted stocks (including shareholdings). With regard to the effect of governance mechanisms, I find that corporate governance does not have a relationship with disclosures when stock-based incentives are low. On the other hand, better governance will strengthen the positive effect of stock-based incentives on disclosures, suggesting that governance and incentives mechanisms are complements instead of substitutes. The results also show that this complementary effect primarily results from the internal monitoring provided by the board of directors. The findings of this study make three contributions to prior literature. First, rather than examining management earnings forecasts or a firm's overall voluntary disclosures, my study on disclosures about firm-specific intangibles provides a more direct and powerful context to test the mechanisms that reduce information asymmetry. Second, this study extends the literature on stock-based incentives by documenting the role of incentive mechanisms in mitigating agency problem pertaining to managerial disclosures. Finally, while prior studies provide evidence about the effect of corporate governance on disclosures, none of them have investigated whether this monitoring mechanism complements or substitutes the mechanism of incentive contracting. This study finds that stock-based incentives and corporate governance are complements to each other in motivating managers to provide more intangibles-related voluntary disclosures. The results also have implications for companies in their disclosure choices as well as design of managerial incentives and governance structures.