Discretion in Financial Reporting: The Voluntary Expensing of Compensatory Stock Options

Dahlia M. Robinson
Arizona State University

Abstract: This paper reports on the recent decision by several firms to begin expensing of the employee stock option (ESO) grants to their employees using the fair value method of SFAS No. 123. We examine the characteristics of and the impact on firm performance of stock option expense for these adopters. We also investigate whether and how the market responds to the announcements.

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