The effects of SFAS-123R on corporate investment

Heeick Choi, Hyung Tae (Ted) Kim, SeungWon Lee and Songtao Mo

Applied Economics Letters, 2020, vol. 27, issue 10, 803-809

Abstract: This study examines the effects of mandatory expensing of stock options on corporate investment after the passage of SFAS-123R. First, we find an increase in corporate investment such as R&D investment and capital expenditure in the post-SFAS-123R period. Second, we find that stock-based compensation such as stock option compensation and restricted stock in the post-SFAS-123R period is positively related to investment. Our findings suggest that SFAS-123R discourages the opportunistic use of stock option compensation. The use of option compensation in the post-SFAS-123R era appears to encourage managers to pursue more long-term investment, which suggests that the SFAS-123R has had positive consequences.

Date: 2020
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DOI: 10.1080/13504851.2019.1646394

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