股票期权奖励与盈余管理动机外文翻译.docx

1、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：Stock Option Compensation and EarningsManagement IncentivesThis study focuses on the relation between the structure of executive compensation and incentives to manage reported earnings. Specifically, we examine whether the use of stock options relative to other form

2、s of pay influences discretionary accrual choices around option award dates. We conduct this study in part because of the apparent trend over the past two decades toward the use of options in executive pay. Compensation research has consistently shown that option awards, measured on a fair value bas

3、is, now represent on average the largest component of CEO pay (Murphy 1999; Baker 1999; Matsunaga 1995; Yermack 1995). Not surprisingly, this trend seems to have contributed to increased scrutiny of CEO pay and to have led directly to several public policy initiatives during the 1990s.For example, a

4、ccounting standard setters adopted a series of rules that greatly expanded investor reporting requirements on options (SEC 1992, 1993; FASB 1995), and, in 1993, Congress enacted tax legislation intended to curb nonperformance-based executive pay (see Reitenga et al. 2002; Perry and Zenner 2001). Fur

5、thermore, as reported in the financial press, criticism of the magnitude of option awards, including criticism by investors, seems to occur regularly (e.g.Orwall 1997; Jereski 1997; Fox 2001; Colvin 2001). Standard setters and politicians are currently reexamining disclosure rules, offering evidence

6、 that options continue to be a difficult public policy issue (Schroeder 2001; Hamburger and Whelan 2002; WSJ 2002).Until recently, academic research has typically focused on testing the use of options within an agency theory framework, primarily examining incentive alignment aspects. Arguably, by ty

7、ing executive pay to stock price outcomes, options encourage managers to make operating and investing decisions that maximize shareholder wealth (Jensen and Meckling 1976). Though results are mixed, the empirical evidence on options as a component of executive pay has generally supported such agency

8、-based predictions. However, other studies document unexpected effects on the firm as well, including surprising evidence that awarding options can induce opportunistic behavior by management. The line of research most relevant for our study is one that suggests that managers manipulate the timing o

9、f news releases or option award dates (or both) as a means of increasing the fair value of their awards. For example, Aboody and Kasznik (2000) report evidence indicating that managers time the release of voluntary disclosures, both good and bad news, around award dates in order to increase the valu

10、e of the options awarded. Since the exercise price of the option is typically set equal to the share price on award date, managers can conceivably increase their option compensation by releasing bad news before the award date. Consistent with this reasoning, Chauvin and Shenoy (2001) find that stock

11、 prices tend to decrease prior to option grants, while Yermack (1997) finds that stock prices tend to increase following option grants. The former effect would typically decrease the exercise price of the option at award date. The latter would increase the options intrinsic value afterward.One way m

12、anagers can influence the stock price of the firm is to manipulate reported performance (Subramanyam 1996). We argue that the evidence in Aboody and Kasznik regarding voluntary disclosures in general implies that there could also be an incentive to manage reported earnings. We extend Aboody and Kasz

13、nik by examining whether option compensation creates incentives for CEOs to actively intervene not only in the timing of voluntary disclosure, but in the financial reporting process as well. We predict that managers receiving a relatively large portion of their compensation in the form of options wi

14、ll use discretionary accruals to report lower operating performance hoping to temporarily suppress stock prices.In addition to addressing the concerns of policymakers, our research is motivated by the fact that while a good deal of research has examined the role of bonus plans in motivating managers

15、 self-interested behavior (e.g., Healy 1985; Lambert and Larcker 1987; Lewellen et al. 1987; Gaver et al. 1995; Holthausen et al. 1995; Reitenga et al. 2002), relatively little published research investigates how stock option compensation influences such behavior. Our study could provide insight on

16、whether standard option compensation practice influences the quality of reported earnings.To conduct our study, we examine compensation and firm performance data on 168 firms during the time period 1992-98. We obtain data from a variety of sources, including Compustat, the Wall Street Journal annual

17、 survey of executive compensation and proxy statements. We estimate a model of the discretionary accruals component of reported annual earnings as a function of several factors including (1) the ratio of option compensation to other forms of pay and (2) the timing of annual earnings announcements an

18、d award dates. As predicted, we find evidence that option awards influence the financial reporting process. Firms that compensate their executives with greater shares of options relative to other forms of pay appear to use discretionary accruals to decrease current earnings. Furthermore, this effect

19、 appears to be stronger if the executive announces earnings prior to an option award date. Our results extend previous research by documenting that managers appear to intervene in the financial reporting process in an attempt to increase the value of their awards.The rest of our paper is structured

20、as follows. In Section 2, we develop our research hypotheses. Section 3 describes our research design, and Section 4 presents our main results and details on sensitivity tests. Finally, Section 5 discusses these results and their implications for executive compensation practices.Based on previous st

21、udies and our own review of proxy statements, it appears that the process of awarding options follows a standard pattern (Yermack 1997; Aboody and Kasznik 2000). Awards are formally determined by a compensation committee of the board of directors and are nearly always made once per year, typically w

22、ith an exercise price equal to share price on award date.As noted in the introduction, most of the academic research on the use of stock options has used an agency theory framework, approaching the structure of executive pay as a solution to various agency problems. Early research such as DeFusco et

23、 al. (1990) and Yermack (1995) yielded mixed results, leaving significant unanswered questions about the prevalence of options. Perhaps because of better data availability, recent agency-based research has provided more consistent results. For example, studies by Core et al. (1999), Core and Guay (1

24、999), and Bryan et al. (2000) appear to support the theory that executive pay structure in general, and the use of options in particular, reflects firms agency costs.However, other lines of research on options indicate that executive compensation practices could produce unintended consequences for t

25、he firm. For example, Lambert et al. (1989) find that firms exhibit lower than predicted dividend payment levels after adopting executive stock option plans. Because the payoff on an option is determined by stock price appreciation rather than total shareholder return (appreciation plus dividends),

26、dividend reduction increases option value. While apparently good for option-holding executives, such a dividend policy might not be fully anticipated by, or in the best interests of, shareholders. Pursuing a similar argument, Jolls (1996) finds that stock repurchases tend to replace cash dividends a

27、s executive option holdings increase. In addition, the line of research that we extend documents that manipulation of voluntary disclosures and/or award dates could increase the value of option compensation. Taken together, the evidence suggests that while option compensation practices are likely to

28、 mitigate some types of agency costs, the same practices might induce other forms of opportunistic behavior. We discuss these findings in more detail along with other relevant research on earnings management below.Prior research suggests that managers manipulate earnings to achieve a variety of obje

29、ctives, including income smoothing (Gaver et al. 1995; DeFond and Park 1997), long-term bonus maximization (Healy 1985), avoidance of technical default of debt covenants (Dichev and Skinner 2001), and avoidance of losses and declines in earnings (Burgstahler and Dichev 1997). Murphy (1999) suggests

30、that option compensation and outright stock ownership by managers give rise to divergent incentives, with stock ownership focusing managers efforts on achieving higher total shareholder returns and options rewarding only share price appreciation relative to the exercise price. Several empirical stud

31、ies provide support for these predictions (Lambert et al. 1989; Lewellen et al. 1987). We conjecture that these divergent incentives could motivate managers to manipulate earnings up or down as a function of compensation structure and other factors.As an example, Matsunaga (1995) argues that, when f

32、irms are under financial distress, they attempt to reduce compensation expense by substituting options for bonus pay. Matsunaga also finds that income-increasing accounting policy choices are positively related to option awards. By extension, this result could imply a positive relation between income-increasing discretionary accruals and option compensation. However, Matsunaga examines only the associations between options and various financial characteristics of the firm, and his analysis does not directly examine any earnings management incentives related to option compensation.In a pape