股票期权奖励与盈余管理动机外文翻译Word文档格式.docx

股票期权奖励与盈余管理动机外文翻译Word文档格式.docx

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StockOptionCompensationandEarnings

ManagementIncentives

Thisstudyfocusesontherelationbetweenthestructureofexecutivecompensationandincentivestomanagereportedearnings.Specifically,weexaminewhethertheuseofstockoptionsrelativetootherformsofpayinfluencesdiscretionaryaccrualchoicesaroundoptionawarddates.Weconductthisstudyinpartbecauseoftheapparenttrendoverthepasttwodecadestowardtheuseofoptionsinexecutivepay.Compensationresearchhasconsistentlyshownthatoptionawards,measuredonafairvaluebasis,nowrepresentonaveragethelargestcomponentofCEOpay（Murphy[1999];

Baker[1999];

Matsunaga[1995];

Yermack[1995]）.Notsurprisingly,thistrendseemstohavecontributedtoincreasedscrutinyofCEOpayandtohaveleddirectlytoseveralpublicpolicyinitiativesduringthe1990s.Forexample,accountingstandardsettersadoptedaseriesofrulesthatgreatlyexpandedinvestorreportingrequirementsonoptions（SEC[1992,1993];

FASB[1995]）,and,in1993,Congressenactedtaxlegislationintendedtocurbnonperformance-basedexecutivepay（seeReitengaetal.[2002];

PerryandZenner[2001]）.Furthermore,asreportedinthefinancialpress,criticismofthemagnitudeofoptionawards,includingcriticismbyinvestors,seemstooccurregularly（e.g.Orwall[1997];

Jereski[1997];

Fox[2001];

Colvin[2001]）.Standardsettersandpoliticiansarecurrentlyreexaminingdisclosurerules,offeringevidencethatoptionscontinuetobeadifficultpublicpolicyissue（Schroeder[2001];

HamburgerandWhelan[2002];

WSJ[2002]）.

Untilrecently,academicresearchhastypicallyfocusedontestingtheuseofoptionswithinanagencytheoryframework,primarilyexaminingincentivealignmentaspects.Arguably,bytyingexecutivepaytostockpriceoutcomes,optionsencouragemanagerstomakeoperatingandinvestingdecisionsthatmaximizeshareholderwealth（JensenandMeckling[1976]）.Thoughresultsaremixed,theempiricalevidenceonoptionsasacomponentofexecutivepayhasgenerallysupportedsuchagency-basedpredictions.However,otherstudiesdocumentunexpectedeffectsonthefirmaswell,includingsurprisingevidencethatawardingoptionscaninduceopportunisticbehaviorbymanagement.Thelineofresearchmostrelevantforourstudyisonethatsuggeststhatmanagersmanipulatethetimingofnewsreleasesoroptionawarddates（orboth）asameansofincreasingthefairvalueoftheirawards.Forexample,AboodyandKasznik（2000）reportevidenceindicatingthatmanagerstimethereleaseofvoluntarydisclosures,bothgoodandbadnews,aroundawarddatesinordertoincreasethevalueoftheoptionsawarded.Sincetheexercisepriceoftheoptionistypicallysetequaltothesharepriceonawarddate,managerscanconceivablyincreasetheiroptioncompensationbyreleasingbadnewsbeforetheawarddate.Consistentwiththisreasoning,ChauvinandShenoy（2001）findthatstockpricestendtodecreasepriortooptiongrants,whileYermack（1997）findsthatstockpricestendtoincreasefollowingoptiongrants.Theformereffectwouldtypicallydecreasetheexercisepriceoftheoptionatawarddate.Thelatterwouldincreasetheoption'

sintrinsicvalueafterward.

Onewaymanagerscaninfluencethestockpriceofthefirmistomanipulatereportedperformance（Subramanyam[1996]）.WearguethattheevidenceinAboodyandKasznikregardingvoluntarydisclosuresingeneralimpliesthattherecouldalsobeanincentivetomanagereportedearnings.WeextendAboodyandKasznikbyexaminingwhetheroptioncompensationcreatesincentivesforCEOstoactivelyintervenenotonlyinthetimingofvoluntarydisclosure,butinthefinancialreportingprocessaswell.Wepredictthatmanagersreceivingarelativelylargeportionoftheircompensationintheformofoptionswillusediscretionaryaccrualstoreportloweroperatingperformancehopingtotemporarilysuppressstockprices.

Inadditiontoaddressingtheconcernsofpolicymakers,ourresearchismotivatedbythefactthatwhileagooddealofresearchhasexaminedtheroleofbonusplansinmotivatingmanagers'

self-interestedbehavior（e.g.,Healy[1985];

LambertandLarcker[1987];

Lewellenetal.[1987];

Gaveretal.[1995];

Holthausenetal.[1995];

Reitengaetal.[2002]）,relativelylittlepublishedresearchinvestigateshowstockoptioncompensationinfluencessuchbehavior.Ourstudycouldprovideinsightonwhetherstandardoptioncompensationpracticeinfluencesthequalityofreportedearnings.

Toconductourstudy,weexaminecompensationandfirmperformancedataon168firmsduringthetimeperiod1992-98.Weobtaindatafromavarietyofsources,includingCompustat,theWallStreetJournalannualsurveyofexecutivecompensationandproxystatements.Weestimateamodelofthediscretionaryaccrualscomponentofreportedannualearningsasafunctionofseveralfactorsincluding

（1）theratioofoptioncompensationtootherformsofpayand

（2）thetimingofannualearningsannouncementsandawarddates.Aspredicted,wefindevidencethatoptionawardsinfluencethefinancialreportingprocess.Firmsthatcompensatetheirexecutiveswithgreatersharesofoptionsrelativetootherformsofpayappeartousediscretionaryaccrualstodecreasecurrentearnings.Furthermore,thiseffectappearstobestrongeriftheexecutiveannouncesearningspriortoanoptionawarddate.Ourresultsextendpreviousresearchbydocumentingthatmanagersappeartointerveneinthefinancialreportingprocessinanattempttoincreasethevalueoftheirawards.

Therestofourpaperisstructuredasfollows.InSection2,wedevelopourresearchhypotheses.Section3describesourresearchdesign,andSection4presentsourmainresultsanddetailsonsensitivitytests.Finally,Section5discussestheseresultsandtheirimplicationsforexecutivecompensationpractices.

Basedonpreviousstudiesandourownreviewofproxystatements,itappearsthattheprocessofawardingoptionsfollowsastandardpattern（Yermack[1997];

AboodyandKasznik[2000]）.Awardsareformallydeterminedbyacompensationcommitteeoftheboardofdirectorsandarenearlyalwaysmadeonceperyear,typicallywithanexercisepriceequaltosharepriceonawarddate.

Asnotedintheintroduction,mostoftheacademicresearchontheuseofstockoptionshasusedanagencytheoryframework,approachingthestructureofexecutivepayasasolutiontovariousagencyproblems.EarlyresearchsuchasDeFuscoetal.（1990）andYermack（1995）yieldedmixedresults,leavingsignificantunansweredquestionsabouttheprevalenceofoptions.Perhapsbecauseofbetterdataavailability,recentagency-basedresearchhasprovidedmoreconsistentresults.Forexample,studiesbyCoreetal.（1999）,CoreandGuay（1999）,andBryanetal.（2000）appeartosupportthetheorythatexecutivepaystructureingeneral,andtheuseofoptionsinparticular,reflectsfirms'

agencycosts.

However,otherlinesofresearchonoptionsindicatethatexecutivecompensationpracticescouldproduceunintendedconsequencesforthefirm.Forexample,Lambertetal.（1989）findthatfirmsexhibitlowerthanpredicteddividendpaymentlevelsafteradoptingexecutivestockoptionplans.Becausethepayoffonanoptionisdeterminedbystockpriceappreciationratherthantotalshareholderreturn（appreciationplusdividends）,dividendreductionincreasesoptionvalue.Whileapparentlygoodforoption-holdingexecutives,suchadividendpolicymightnotbefullyanticipatedby,orinthebestinterestsof,shareholders.Pursuingasimilarargument,Jolls（1996）findsthatstockrepurchasestendtoreplacecashdividendsasexecutiveoptionholdingsincrease.Inaddition,thelineofresearchthatweextenddocumentsthatmanipulationofvoluntarydisclosuresand/orawarddatescouldincreasethevalueofoptioncompensation.Takentogether,theevidencesuggeststhatwhileoptioncompensationpracticesarelikelytomitigatesometypesofagencycosts,thesamepracticesmightinduceotherformsofopportunisticbehavior.Wediscussthesefindingsinmoredetailalongwithotherrelevantresearchonearningsmanagementbelow.

Priorresearchsuggeststhatmanagersmanipulateearningstoachieveavarietyofobjectives,including"

incomesmoothing"

（Gaveretal.[1995];

DeFondandPark[1997]）,long-termbonusmaximization（Healy[1985]）,avoidanceoftechnicaldefaultofdebtcovenants（DichevandSkinner[2001]）,andavoidanceoflossesanddeclinesinearnings（BurgstahlerandDichev[1997]）.Murphy（1999）suggeststhatoptioncompensationandoutrightstockownershipbymanagersgiverisetodivergentincentives,withstockownershipfocusingmanagers'

effortsonachievinghighertotalshareholderreturnsandoptionsrewardingonlysharepriceappreciationrelativetotheexerciseprice.Severalempiricalstudiesprovidesupportforthesepredictions（Lambertetal.[1989];

Lewellenetal.[1987]）.Weconjecturethatthesedivergentincentivescouldmotivatemanagerstomanipulateearningsupordownasafunctionofcompensationstructureandotherfactors.

Asanexample,Matsunaga（1995）arguesthat,whenfirmsareunderfinancialdistress,theyattempttoreducecompensationexpensebysubstitutingoptionsforbonuspay.Matsunagaalsofindsthatincome-increasingaccountingpolicychoicesarepositivelyrelatedtooptionawards.Byextension,thisresultcouldimplyapositiverelationbetweenincome-increasingdiscretionaryaccrualsandoptioncompensation.However,Matsunagaexaminesonlytheassociationsbetweenoptionsandvariousfinancialcharacteristicsofthefirm,andhisanalysisdoesnotdirectlyexamineanyearningsmanagementincentivesrelatedtooptioncompensation.

Inapape