Research On Economic Consequence Of Executive Stock Option Accounting

Executive stock option (ESO) is becoming more and more important in China as an effective incentive system with the great development of China capital market. China GAAP No.11 gives clear guidelines for ESO accounting from 2007. Economic consequences of ESO accounting have direct connection with ESO encouraging power.Basing on the above mentioned, this paper builds up the framework of economic consequence analysis for ESO accounting according to the accounting economic consequence theory. This paper tries to answer several main problems as follows: What are the influencing factors of ESO disclosure? Do managers really manipulate exercise price of ESO? Does China GAAP No.11 have control over ESO exercise price manipulation? What is the market reaction to China GAAP No.11? What is the difference of market reaction caused by ESO accounting transform between China and France? This paper gets the following innovative results by stdudying all the above questions:(1) It puts forward the influencing factor hypothesis of ESO disclosure strategy and analyzes five detailed influencing factor hypothesis by difference significance test and logistic regression. This paper finds out that proportion of ESO held by managers and liability constraint are two main influencing factors of ESO disclosure strategy.(2) It analyzes the exercise price manipulation behavior of ESO. Using event study method, it tests abnormal stock pirces around the date when ESO plan were put out and finally proves the exercise price manipulation exists in China and China GAAP No. 11 has not eliminated this behavior.(3) Using event study method, it analyzes the market reaction caused by ESO accounting transform in China and finds out that there is not significant reaction in short time window and negative reaction in long time window (230 trading days). (4) It makes the same event study using data from CAC40 and SBF120. Comparing capital market maturity difference and market reaction caused by expensing ESO between China and France, this paper finds out the more mature the capital market is, the weaker market reaction caused by expensing ESO.According to the above results, this paper will surely give some useful advices to China GAAP No.11 and stock option compensation under the special capital market circumstance of China.