Earnings management around employee stock option reissues

Jeffrey L. Coles, Michael Hertzel, Swaminathan Kalpathy

Research output: Contribution to journalArticle

65 Citations (Scopus)

Abstract

We investigate market behavior in a setting where managerial incentives to manipulate earnings and market price should be apparent ex ante to market participants. We find evidence of abnormally low discretionary accruals in the period following announcements of cancellations of executive stock options up to the time the options are reissued. Nevertheless, analysts and investors are not misled. Discretionary accruals have little power in explaining stock price performance during this period. Moreover, discretionary accruals do not explain subsequent analyst forecast errors. Thus, our findings suggest that, in this transparent setting, analysts and investors do not respond to earnings management.

Original languageEnglish (US)
Pages (from-to)173-200
Number of pages28
JournalJournal of Accounting and Economics
Volume41
Issue number1-2
DOIs
StatePublished - Apr 2006

Fingerprint

Employee stock options
Earnings management
Discretionary accruals
Investors
Analysts
Announcement
Executive stock options
Analysts' forecasts
Market behavior
Cancellation
Stock price performance
Market price
Managerial incentives
Forecast error

Keywords

  • Capital markets
  • Discretionary accruals
  • Earnings management
  • Executive compensation
  • Stock options

ASJC Scopus subject areas

  • Accounting
  • Economics and Econometrics
  • Finance

Cite this

Earnings management around employee stock option reissues. / Coles, Jeffrey L.; Hertzel, Michael; Kalpathy, Swaminathan.

In: Journal of Accounting and Economics, Vol. 41, No. 1-2, 04.2006, p. 173-200.

Research output: Contribution to journalArticle

Coles, Jeffrey L. ; Hertzel, Michael ; Kalpathy, Swaminathan. / Earnings management around employee stock option reissues. In: Journal of Accounting and Economics. 2006 ; Vol. 41, No. 1-2. pp. 173-200.
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