Authors: Philémon Rakoto
The relationship between share price and accounting information is tested by the addition of a moderating variable--the presence of executive stock options. The sample is made up of 119 Canadian high-technology firms with available data for the fiscal year ending in 2010. In the basic regression model developed by Ohlson , the book value of equity is the most important element of valuation. By introducing in the regression the presence of executive stock options and their interaction with the book value of shareholder's equity and with net earnings, the regression model is improved compared with the basic model, and the coefficients of the two interaction variables are all significant and in the expected direction. These results suggest that the presence of executive stock options seems to be interpreted positively by investors, aiding their decision making by increasing their confidence in the accounting information reported.
Keywords: value relevance, accounting information, executive stock options, high-tech firms, Canada