The primary goals of this paper were (a) to test the information content of stock dividend announcements and (b) to produce evidence about the validity of the AICPA conclusion that small stock dividends almost always produce significant amounts of extra value on the ex date and that large stock dividends fail to generate such ex date value. In regard to the first objective, the authors' findings imply that the market, in the aggregate, uses stock dividend information in setting equilibrium security prices, that much of the market's reaction to such information occurs no later than the declaration date, and that such information tends to produce positive unexpected returns. With respect to the second goal, the results imply that the market is not conditioned to react positively to stock dividends of any size on the ex date and, consequently, that the AICPA conclusion is valid (invalid) with respect to large (small) stock dividends.

The goal of this study is to investigate the incremental information content of the 10-K (i.e., the information content of the data which are contained in the 10-K, but which are not included in the annual report) from a market perspective. This objective was accomplished by examining aggregate market reaction to the 10-K via several statistical procedures. Each of these procedures appears to imply that the market, in the aggregate, uses the incremental data in the 10-K in setting equilibrium security prices and, consequently, that this data set possesses information content.

Comments on the valuation of executive stock options (ESO) and the fair value proposal of the Financial Accounting and Standards Board. Stability of the added parameter; Compatibility of lambda and the numerical method with accounting policy; Analysis of the ESO estimation.

[Under existing generally accepted accounting principles, no compensation expense is recorded for executive stock options (ESOs) if the exercise price on the date of grant is equal to (or greater than) the market price of the stock. Similarly, only negligible compensation expense tends to be recorded if the exercise price on the date of grant is less than the market price of the stock. The inadequacy of this method (see Boudreaux and Zeff 1976; Smith and Zimmerman 1976; and Weygandt 1977) has led the Financial Accounting Standards Board (FASB) to consider a proposal to measure compensation related to grants of ESOs at their fair values, with a lower bound constraint. A candidate model for the estimation of fair value (Swieringa 1987) is the Black and Scholes (B-S) (1973) pricing model with the Merton (1973) modification that allows for continuous-dividends. It would seem natural (and we infer that the FASB would opt) to use the continuous-dividend version of the B-S model for firms that pay cash dividends and the no-dividend version for firms that do not pay dividends. Note that if cash dividends are assumed to be zero (as would be the case for firms that do not pay dividends), the continuous-dividend version reduces to the original B-S formulation. Thus, we label the B-S continuous-dividend model (subject to the stipulation that the B-S estimate not be less than the number yielded by the FASB's minimum-value model) as the FASB proposal. This labeling applies whether the grant date or the vesting date is considered to be the measurement date (discussed below). To examine the income effect of changing the accounting method of ESOs, this study applies the FASB's proposal to a random sample of firms that granted stock options in order to assess the impact of the related compensation expense on operating income. A second objective is to compare ESO compensation estimates from the two models underlying the FASB proposal: (1) the B-S continuous-dividend model, and (2) the FASB's minimum-value procedure (discussed subsequently). In addition, the latest FASB proposal requires that stock option compensation be measured as of the vesting date, as opposed to the date of grant. Thus, a third objective is to provide evidence as to whether vestingdate estimates of ESO compensation are significantly different from ESO estimates generated on the grant date. The results indicate that, using a three percent materiality threshold, more non-dividend paying firms (about 30 percent) would have material income effects than dividend-paying firms (about eight percent). Furthermore, using alternative measures of service periods shorter than the lives of options, produces material ESO compensation expense for a high percentage of sample firms. Finally, applying the FASB proposal on the basis of the vesting date would result in a lower income effect than applying it on the basis of the date of grant. In general, material income effects are observed when the FASB's proposal is adopted irrespective of the valuation model used.]

The article applies the Financial Accounting Standards Board (FASB)'s proposal to a random sample of firms that granted stock options in order to assess the impact of the related compensation expense on operating income in the United States. Under existing generally accepted accounting principles, no compensation expense is recorded for executive stock options (ESOs) if the exercise price on the date of grant is equal to the market price of the stock. Similarly, only negligible compensation expense tends to be recorded if the exercise price on the date of grant is less than the market price of the stock. The inadequacy of this method has led the FASB to consider a proposal to measure compensation related to grants of ESOs at their fair values, with a lower bound constraint. It would seem natural to use the continuous-dividend version of the B-S model for firms that pay cash dividends and the no-dividend version for firms that do not pay dividends. The latest FASB proposal requires that stock option compensation be measured as of the vesting date, as opposed to the date of grant.

The article presents a comment on the interpretation of API. In "Interpreting the API," Ronald M. Marshall concludes that API does not always provide a proper measure of either the private value of accounting data or the association between unexpected accounting signals and unexpected market returns. In addition, Marshall concludes that an alternative formulation of API always produces measures of these attributes, which are at least as good as those obtained via API. On the basis of these conclusions, Marshall argues that API constitutes the more appropriate tool for use in accounting research. Authors do not disagree with Marshall's conclusions from a conceptual viewpoint, but they do question the desirability of using API in accounting research because of its inherent subjectivity and costliness in terms of time. Since API does not possess these defects, authors believe that it constitutes the better research technique when, conceptually speaking, it can be expected to yield results, which are equivalent to those that would be produced using API. One objective of the paper is to identify an important sufficient condition, under which the two API will produce equivalent results.