The effects of SFAS 123R on earnings management

This study investigates whether SFAS 123R was effective at curtailing firms’ earnings management associated with stock option compensation. Using a difference-in-differences (DiD) analysis, I find that firms with high implied option compensation before SFAS 123R significantly reduced earnings management after SFAS 123R. The sub-period analysis indicates that option compensation after SFAS 123R is negatively related to earnings management, while option compensation before SFAS 123R is positively related to earnings management. Overall, the findings indicate that SFAS 123R effectively diminished earnings management associated with stock option compensation.

This is the peer reviewed version of the following article: [The effects of SFAS 123R on earnings management. Journal of Corporate Accounting & Finance 34, 1 p179-190 (2022)], which has been published in final form at https://doi.org/10.1002/jcaf.22589. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions: https://authorservices.wiley.com/author-resources/Journal-Authors/licensing/self-archiving.html#3.