هزینه تراشی گزینه های سهام : بررسی توضیحات آژانس ها و تئوری سازمانی
|کد مقاله||سال انتشار||تعداد صفحات مقاله انگلیسی||ترجمه فارسی|
|19775||2006||9 صفحه PDF||سفارش دهید|
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Business Research, Volume 59, Issue 5, May 2006, Pages 595–603
As the debate over appropriate compensation disclosure continues, some firms have volunteered to recognize stock option costs within their income statements. On the one hand, stock option expensing can significantly enhance the legitimacy of the organization and restore shareholders' confidence in corporate governance practices. On the other hand, expensing stock options could decrease firm earnings, leading to unfavorable comparisons to non-expensing firms. Our logit analysis of 402 S&P firms lends partial support to agency theory explanations for stock option expensing; these results depend on the costs associated with expensing. We find stronger support for the institutional theory perspective that mimetic pressures significantly increase the likelihood that firms will expense stock options, independent of the cost. Our findings have important governance implications, suggesting a more complex model of compensation disclosure in which social pressures dominate voluntary compensation disclosure decisions.
Long-term, outcomes-based incentives like stock options have been recommended as compensation tools to create better alignment between agents and principals by encouraging employment-undiversified executives to take appropriate risks that bring value to shareholders (Eisenhardt, 1989 and Jensen and Meckling, 1976). Such payments were practically invisible to owners because options were not expensed within income statements and only were apparent in footnotes in the form of diluted earnings per share. Because options were not expensed, net income and earnings per share remained high, organizations continued to give out millions of costless options during the 1990s and early 2000s, and options became a large part of executive compensation. Had firms been forced to provide a more transparent accounting of the costs of stock options, compensation decision makers might have used more restraint. With the onset of the bear market of the mid-2000s and increasingly negative public sentiment regarding executive compensation, more firms are considering voluntarily recognizing stock options costs. But why would firms decide to recognize stock option costs voluntarily within their income statements? From an agency perspective, principals (owners) prefer stock option expensing because it can reduce information asymmetries by more accurately reflecting the firm's financial position. Owners might advocate expensing because it would force companies to give stock options only when their incentive effect is greater than the cost and when options actually pay for performance (e.g., Aboody et al., 2003). Although some managers may voluntarily expense options to signal their optimism about the firm's future (Bastian et al., 2003), in general, agents do not want to expense stock options because doing so suppresses earnings and makes the firm appear less profitable than its non-expensing rivals. Given that the costs of stock option expensing have been estimated to decrease the average company's earnings by 10%, this decision is anything but inconsequential (Leonhardt, 2002). From an institutional theory perspective, firms might adopt stock option expensing to acquire social legitimacy among networks of other expensing firms and to match the pervasiveness of expensing within their industries (Westphal et al., 2001 and Westphal and Zajac, 1994). Firms may adopt expensing to signal that they have sound corporate governance structures in place, which enhances their credibility in the institutional context (e.g., Westphal and Zajac, 2001). In other words, firms may expense stock options not because expensing solves information asymmetry problems but out of a desire to be on the forefront of or join other firms practicing clearer corporate disclosure. Given this context, we raise the following research question: How do agency, institutional, and cost factors influence management's decision to reduce information asymmetry by voluntarily recognizing the cost of stock option compensation? The answer is important for both management literature and practice. From a theoretical perspective, little is understood about how agency and institutional forces may be constrained or enhanced on the basis of the costs associated with reducing information asymmetry. From a practical standpoint, our study has implications for public policy and ownership research in general. Specifically, we identify the conditions in which firms voluntarily expense options, a choice made by managers and their advisors (e.g., boards) to improve the disclosure of compensation costs.
نتیجه گیری انگلیسی
Agency theory predicts that long-term owners will welcome more complete recognitions of the cost of stock options. Recent shareholder actions support this statement; for example, a shareholder proposal to expense stock options at Delta Airlines recently passed with 60% of the vote (Brooks, 2003). However, these results are contingent on not only the specific type of owner but also the cost of expensing; banks are only strong advocates of expensing when its costs are low and there are more bank owners. Short-term owners may be less interested in firm expensing, because they do not want to support additional expenses that might hurt firm value in the short run. The results from our main effect hypotheses support this claim but are contingent on not only the specific type of short-term owner but also the cost of expensing. Specifically, mutual funds are less likely to oppose expensing when the costs are greater, particularly when there are significant numbers of other mutual fund owners. The overall impact of mutual funds on expensing is small; perhaps their different attitude toward expensing results from having a critical mass of other mutual funds that can help them bear the cost of expensing, which leads them to support it, as our interaction shows. Another explanation suggests that information asymmetry solutions like expensing may be advocated more when there are more owners. The chances that any one owner will advocate any one solution increase as the number of owners increases. Similar to the logic of board interlocks, additional studies might investigate the possibility of “ownership” interlocks, whereby investors of a particular type compare notes on the relative value of information asymmetry solutions like expensing. Both our empirical results and these ideas lend further credence to institutional theory arguments. Although the interactions are statistically significant, the practical significance of our results still requires discussion. By combining the results of our analyses into one graphic with only one y-axis that represents the propensity to expense, we can observe that the probability of expensing with short-term investors ranges from only .1% to 1.5%—a small figure compared with the long-term investor results, which range 1–13.5%. In other words, though the interaction is significant, the effect on the probability of expensing in practical terms is very small. Apparently, long-term investors (banks) are stauncher advocates of expensing, possibly because of their earlier exposure to the practice. Recent scholarship in management studies suggests that ownership stakes alone are insufficient to influence management choice and only through activism can owners gain influence (e.g., David et al., 2001). In line with this alternative hypothesis, we investigated the owner activism history for 170 firms in our sample and found that previous activism is not a significant predictor of stock option expensing in 2002. Our results contribute to ownership literature in several ways. Institutional owners vary in terms of their preferences for compensation recognition, and long-term owners (banks) differ in their preferences for disclosure from short-term owners (mutual funds). Our research confirms Hoskisson et al.'s (2002) insight that all institutional owners are not the same and that the number and the type of owners are important measures of influence. Evidently, the number of loud voices is more important than how large these owners are; considering one without the other will yield an incomplete picture of why firms expense. Although previous work has considered the effect of ownership on corporate behavior, ours is the first study to consider management's decision to reduce information asymmetries between owners and managers in the form of clearer compensation disclosures. However, we can only understand a firm's decision to expense by acknowledging that the various owners are more or less concerned with expensing as a function of cost. Namely, banks are stronger advocates of expensing but only when it does not cost much. Also, as a group, mutual funds are comparatively less likely to advocate expensing, because as short-term investors, they do not want to bear too many of these costs.