股票期权奖励与盈余管理动机外文翻译.docx
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股票期权奖励与盈余管理动机外文翻译
中文4200字
外文翻译
原文:
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.
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