DOI: 10.5176/2251-1997_AF19.276
Authors: Prof. Hsiao-Wen Wang
Abstract: This study explores how performance-based compensation in the forms of options and restricted shares affects the managers’ behavior of financial reporting (measured by the conservatism of financial statement). Our empirical result shows that employee stock options reduce accounting conservatism while restricted shares enhance it. This is attributable to their profit curves: as stock options have no upper limit which induce managers have stronger incentives to raise stock prices. Since both stock options and restricted shares have to be evaluated by fair value method, their profit curves become the key factors in affecting accounting conservatism.
Keywords: Employee Stock Options, Restricted Shares, Performance-based Compensation, Accounting Conservatism.
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