Stock Option Exercises and Discretionary Disclosure

Wei Zhang and Steven F. Cahan
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Wei Zhang: School of Business, University at Albany, 1400 Washington Avenue, Alabany, NY 12222, USA
Steven F. Cahan: University of Auckland Business School, Private Bag 92019, Auckland, New Zealand

Chapter 4 in Advances in Quantitative Analysis of Finance and Accounting, 2007, pp 63-84 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractIn this paper, we empirically examine recent claims by politicians and business journalists that stock option exercises give managers incentives to adopt certain disclosure policies. We predict that when firms have bad news, large stock option exercises will have a negative effect on discretionary disclosures. Using Association for Investment Management and Research ratings to measure discretionary disclosures, for a sample of 359 firm-year observations from 18 industries, we find evidence supporting our prediction after we control for stock option grants. Although we confirm previous findings that option awards create incentives for more disclosures, our results also suggest that stock option exercises could have an adverse effect on accounting disclosures when firms are experiencing a period of negative returns in stock markets.

Keywords: Monte Carlo Simulations; REIT; IPO; Fractional Integration; Seasonality; Long Memory; Macroeconomic Shocks; VAR; Interest Rates (search for similar items in EconPapers)
Date: 2007
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