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The Accounting Review Vol. 79 No. 2 2004

SFAS No. 123 Stock-Based Compensation Expense and Equity Market Values

David Aboody1; Mary E. Barth2; Ron Kasznik2

1 a University of California, Los Angeles. · 2 b Stanford University

Abstract

This study investigates the relation between share price and stock-based compensation expense that is disclosed but not recognized under SFAS No. 123, after controlling for net income, equity book value, and expected earnings growth. Our instrumental variables approach controls for the mechanical relation between share price and option values. We find that investors view SFAS No. 123 expense as an expense of the firm, and as sufficiently reliable to be reflected in their valuation assessments. Findings based on annual returns indicate SFAS No. 123 expense reflects on a timely basis changes in investor-perceived costs associated with stock-based compensation.

DOI
10.2308/accr.2004.79.2.251
Volume
79
Issue
2
Pages
251-275
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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