Stock Options, Idiosyncratic Volatility, and Earnings Quality-Reference-Cited by-同舟云学术

Stock Options, Idiosyncratic Volatility, and Earnings Quality

Published:2015-06 Issue:02 Volume:18 Page:1550011
ISSN:0219-0915
Container-title:Review of Pacific Basin Financial Markets and Policies
language:en
Short-container-title:Rev. Pac. Basin Finan. Mark. Pol.

Author:

Alam Pervaiz¹,Liu Min²,Liu Zhefeng³,Peng Xiaofeng⁴

Affiliation:

1. Department of Accounting, College of Business Administration, Kent State University, Kent, OH 44242, USA

2. Business Division, ASA Institute, New York, NY 11201, USA

3. Goodman School of Business, Brock University St Catharines, Onatario, Canada

4. Department of Accounting, College of Business and Innovation, University of Toledo, Ohio 43606, USA

Abstract

The value of stock options increases in both stock prices and volatility. It suggests that options might engender incentives for managers to increase both stock prices and volatility. Recent studies have documented a negative association between earnings quality and idiosyncratic volatility: Hence, the lower the earnings quality, the greater the idiosyncratic volatility, and the higher the value of stock options. This study investigates whether there is a link between CEO equity compensation and earnings quality. Using a simultaneous system of equations, we find negative correlations between the two, suggesting that managers have incentives to reduce earnings quality.

Publisher

World Scientific Pub Co Pte Lt

Subject

Economics and Econometrics,Finance

Link

https://www.worldscientific.com/doi/pdf/10.1142/S0219091515500113

Reference60 articles.

1. CEO stock option awards and the timing of corporate voluntary disclosures

2. Chief Executive Officer Equity Incentives and Accounting Irregularities

3. EVIDENCE ON HOW COMPANIES CHOOSE BETWEEN DIVIDENDS AND OPEN-MARKET STOCK REPURCHASES

4. Private Information, Earnings Manipulations, and Executive Stock-Option Exercises

5. Stock option compensation and the likelihood of meeting analysts' quarterly earnings targets

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