Market Reactions to Announcements to Expense Options
Document Type
Article
Publication Date
7-1-2009
Description
The joint hypotheses of informationally efficient markets, transparent financial statements, and adequate accounting disclosure suggest that announcements of changes in the accounting treatment of employee stock options from footnote disclosure to expense recognition should not trigger stock price reactions because free-cash-flows will not change. Event study results from a sample of 241 firms that announce such changes reveal statistically significant negative price changes followed by positive price changes about equal in magnitude. We propose the learning, sophisticated investor, neglected firm, and firm size hypotheses to explain the observed announcement-period stock price reaction.
Citation Information
Prather, Larry J.; Chu, Ting H.; and Bayes, Paul E.. 2009. Market Reactions to Announcements to Expense Options. Journal of Economics and Finance. Vol.33(3). 223-245. https://doi.org/10.1007/s12197-008-9035-5 ISSN: 1055-0925