Executive Stock Option (ESOs) is the most prevailing encouragement system in the United States. Until the amended Securities Law £i28-¢º and III in July, 2000, the most popular encouragement system in Taiwan is Employee Stock Bonus (ESBs). After introducing the ESOs in 2000, Vanguard International Semiconductor Corporation (VIS) is the first company to implement the ESOs in February, 2001. Taiwan¡¦s Companies start to implement the ESOs one after another after VIS¡¦s adoption. ESOs are an encouragement system for companies. However, the company management might use earnings management on account of self-interests to increase the value of stock options they owned. The issuance of ESOs can¡¦t increase the profit of the corporate in this situation. On the contrary, it becomes a motivation of the management to manipulate the earnings. This research is about three topics between ESOs and earnings management and the targets are the Taiwan listed electronic companies from year 2001 to year 2005. This study is mainly about three issues of the relations about ESOs and Earnings Management in Taiwan listed companies in the time between 2001 and 2005. First, if companies that grant ESOs would come up more earnings management over time in the lock-up period. Second, if companies that grant ESOs would come up more earnings management than those that don¡¦t grant ESOs when the lock-up period ends. Finally, this study is about the relations between the volume of ESOs and the earnings management. The experiment findings conclude that companies that issue ESOs have the lowest earnings management level at the year of issuance and the highest level at the year of the end of the lock-up period. Comparing with the companies that don¡¦t issue ESOs, companies that issue ESOs have higher earnings management level. Finally, this study concludes that the amount of the ESOs doesn¡¦t affect the earnings management significantly.

This thesis investigates statutory executive stock option (ESO) disclosures by Australian listed companies, and their nature, extent and association with governance characteristics. The study is motivated by the limited prior Australian studies that find evidence of low levels of compliance with ESO disclosures (Nelson and Percy, 2005), and by the changes in Australia's regulatory environment over the financial years 2001 to 2004. Arising from these motivations, three research questions are addressed: 1) what is the nature and extent of compliance with ESO disclosures in annual reports and does it change over time?, 2) how does corporate governance influence compliance with ESO disclosures?, and 3) what other factors influence compliance with ESO disclosures? Based on prior research and an application of agency theory, the research questions are addressed by systematically evaluating ESO disclosure compliance, and by modelling and testing the governance and other factors associated with companies' disclosure practices over the 2001 to 2004 study period. Within the agency framework, it is argued that effective governance mechanisms mitigate agency costs by decreasing information asymmetry through increased disclosure. Hence it is predicted that internal governance mechanisms, including the effectiveness of the board of directors, the effectiveness of the audit committee, the existence of a compensation committee, and management incentives are associated with the level of compliance with ESO disclosures. In addition, external governance mechanisms are predicted to influence compliance with ESO disclosures. Specifically, it is predicted that firms responded positively to the increased media and regulatory scrutiny on financial reporting practices as a result of major corporate collapses in Australia and the United States. Furthermore, it is predicted that regulatory intervention, in the form of new and comprehensive ESO disclosure requirements, as well as the authoritative guidance on valuing options and active enforcement efforts by ASIC, have contributed to increased levels of compliance. Using a combination of univariate and multivariate procedures, compliance and governance characteristics are tested over the financial years 2001 to 2004, to capture the changes in compliance over time and to examine the hypothesised relationships. The results of this thesis indicate that Australian companies do not fully comply with ESO disclosure requirements. Nevertheless, the results show that overall compliance has increased progressively from 2001 to 2004, suggesting that the increased scrutiny of companies' financial reporting practices following major corporate collapses has motivated companies to increase compliance. Notably, compliance has increased after the introduction of new and more comprehensive disclosure requirements for ESOs, as well as increased authoritative guidance and enforcement efforts by ASIC. However, despite the overall evidence of improvement in compliance levels, the results continue to reveal management's reluctance to disclose ESO information that may be considered sensitive (for example, price and value-related information). The multivariate results indicate that firms with a larger board of directors and a larger audit committee are more likely to encourage greater levels of compliance with ESO disclosures. However, a larger board of directors appears to take a holistic approach to monitoring company activities by encouraging higher overall compliance rather than focusing on specific, sensitive disclosures. Where a less independent Chairperson is present, the firm is more likely to disclose more sensitive information only, indicating a substitution effect whereby firms mitigate the agency problems associated with this lack of independence by increasing sensitive disclosures. Also, where the Chief Executive Officer's remuneration is relatively larger, companies are less forthcoming about ESO information. With respect to the influence of external corporate governance, the findings indicate that companies identified as poor performers by the Australian Shareholders' Association (a measure of external governance) exhibit lower levels of overall compliance, but not compliance with sensitive disclosures. This latter finding suggests that poorly performing firms provide similar levels of sensitive and important information as other firms, possibly to direct attention away from the low performance of the company. Consistent with prior disclosure research, other factors associated with compliance include leverage, where firms that are more highly leveraged disclose more sensitive information in an effort to become more transparent to creditors, thus reducing their monitoring costs. The use of a Big 4 auditor (a proxy for auditor quality) is associated with overall compliance, which indicates that external auditors primarily ensure that the financial report as a whole is compliant with the regulations, rather than identifying sensitive disclosures in detail, particularly where these disclosures may not have a material effect. Lastly, performance (as measured by profit or lossmaking status) is negatively associated with compliance. By investigating in detail the nature and extent of compliance with ESO disclosures over time and its relation to governance characteristics, the findings of this study demonstrate that while companies appear to lack full compliance with ESO disclosures, compliance has increased over time with active regulatory enforcement and assistance and comprehensive disclosure requirements. Of particular interest, is that the nature of compliance illustrates the very low levels of compliance with important, but sensitive, components of the required ESO disclosures. Importantly, the adoption of stronger governance structures appears to enhance compliance with ESO disclosures, including sensitive disclosures. Therefore, the findings of this study have important implications for corporate regulators, standard setters, financial statement preparers, shareholders and other users of financial reports with an interest in ESOs.

Abstract Employee Stock Bonus (ESB) is a unique bonus model to link employee salary package with company performance under the current regulation in Taiwan. Comparing with Employee Stock Option (ESOP) in USA, ESB is different in accounting process, company¡¦s actual cost and the model of employee gain in spite of the principle of linking employee salary package to corporate performance is the same. Moreover, the incentive effectiveness and the impact on shareholders¡¦ value between ESB and ESOP need to be clarified. The objectives of this research are to discuss the pros and cons of ESB program as well as to analyze the implementation history and decision characterization of ESB in Taiwan. In the first part of this study, we compare the difference between ESB and ESOP in terms of their fundamentals, implementation and incentive effectiveness, as well as analyze the impact on shareholders¡¦ value by various accounting principles and valuation models approaches.¡@In the second part, we do a history study on ESB implementation history of Taiwan hi-tech industries. We point out some improper ESB decisions that hurt shareholder¡¦s value. We also propose some indexes to measure effectiveness, efficiency of ESB and degree of impact on shareholder¡¦s value. In the third part, we apply regression methodology and cross-sectional analysis to characterize the ESB decision using the samples from Taiwan listed hi-tech companies between 1998 to 2001. We conclude the following contributions in this research: 1. The fundamental of ESB is to provide employee bonus by diluting shareholder¡¦s value. During bull market or stock price appreciates after stock splits, ESB perfectly incorporates employee bonus with shareholders¡¦ value. On the other hand, ESB becomes an extra overhead for shareholders during bear market or stock price depreciates after stock splits. 2. What employees gain from ESB is paid by equity market instead of being paid by the company, no matter whichever accounting principle is adopted. Recognizing ESB as company expense will present income statement in more a proper way but will not impact book value of equity. 3. To recognize ESB as company expense will reduce ¡§intrinsic value of equity¡¨ evaluated by EBO model as EBO model is based on accounting profit. As DFC model is based on free cash flow, ¡§intrinsic value of equity¡¨ evaluated by DFC model will not change even if different accounting principles are adopted. However, ¡§intrinsic value of equity per share¡¨ will be slightly affected by the dilution of share number. 4. In the research samples, mean of ¡§the market value of ESB over average appreciation value of company¡¨ is 13%¡Astandard deviation is 53%¡Amedian is 8%, which implies the welfare effectiveness created by ESB to shareholders varies with individual company. 5. The result of empirical study supports that the main measurement index for managers to decide the share number of ESB program is ¡§total market value of ESB¡¨ instead of ¡§profit share rate¡¨ or ¡§dilution rate¡¨, regardless companies which adopted ¡§fix profit share rate for ESB¡¨ policy. 6. According to the result of empirical study, ¡§the market value of ESB ¡¨ is significantly positive- correlated to growth opportunity, merit raises rate, net profit growth rate, and significantly negative ¡V correlated to company size and financial leverage. ¡§The market value of ESB per employee¡¨ is significantly positive-correlated to company size, growth opportunity, merit raises rate, net profit growth rate, and significantly negative ¡V correlated to financial leverage. The result is consistent with hypotheses that are based on Agency Theory, Information Asymmetry Theory and Scale of Economic. The result of empirical study is not able to support the hypotheses that managers will offer employee more value of ESB according to the appreciation of company value.

Abstract Employee stock option had been discussed for long time and had become very popular topic for current corporates¡¦ financial management. The importance of its option value model becomes hot topic now. The recommended model based on FASB No. 123 may not be helpful to see its payoff distortion from risk aversion and employee exit rate factors. We choose some companies at Taiwan which use employee stock option as their financial tool and study how both risk aversion and employee exit rate impact their value with modified binomial tree method. The results show that risk aversion factor is more sensitivity and cause option payoff change its value within very narrow input range, while employee exit rate also change option value sigfincantly after 10% exit rate range. Hence. Evaluation of risk aversion and employee exit rate factors become important. Companies need to search for optimal solution of those factors to achieve optimal option valuation and its relative incentive effect in order to retain their employee.

abstract: In this paper, I investigate whether participation in employee stock option exchange programs contains private information about future stock returns. High participation in employee stock option exchange programs is associated with negative future abnormal returns over the ensuing 12-month period. This association is moderated by the transparency of the firm's information environment: high institutional ownership and high financial statement informativeness weaken the negative relation between participation and abnormal returns. Controlling for transparency of the firms' information environment, the association between participation and future returns arises primarily from firms that allow the CEO to participate. / Dissertation/Thesis / Ph.D. Accountancy 2013

Stock options constituem uma forma cada vez mais comum de remunerar e reter executivos. Nos Estados Unidos, encontram-se normas que tratam do assunto desde 1948. No Brasil, embora a Lei n. 6.404/1976 já abordasse o assunto, a primeira normatização específica veio com o CPC 10 Pagamento Baseado em Ações, no final de 2008. Esta dissertação é um ensaio teórico, que enfoca o tratamento contábil adotado quando uma empresa oferece, exclusivamente, opções de ações a seus funcionários (sem alternativa de quitação do equivalente em dinheiro), com o objetivo de discutir a questão à luz da Teoria da Contabilidade, considerando que a Contabilidade tem como finalidade oferecer informações necessárias e suficientes à tomada de decisões econômicas. A grande discussão gira em torno do fato de a operação não gerar uma despesa para a empresa, posto que as razões que a caracterizam hoje como tal não encontram fundamento teórico suficiente para justificar essa contabilização. Pelo fato de não ser despesa e também não caracterizar lucro abrangente, a operação é considerada como transação de capital. O custo de oportunidade é também abordado, considerando sua relevância para uma discussão completa. / Stock options has become a common way to reward and retain executives. In United States, we find rules that deal with the subject since 1948. In Brazil, although the Brazilian Law 6.404/76 had already dealt with the subject, the first specific standardization came with CPC10 Share-Based Payment, in the end of 2008. This is a theoretical essay that focuses the accounting treatment when a company offers stock options to their employees, (without the alternative to pay equivalent amount in cash) and in accordance with the Theory of Accountancy, providing enough information for making economic decisions. The main debate is about the fact that this transaction does not generate an expense to the company, since there are not sufficient theoretical basis to justify it as well. Due to the fact that this is not an expense and neither characterize comprehensive income, it could be considered as capital transaction. The opportunity cost is also addressed in this essay, considering its relevance to a complete discussion.

I investigate the relation between CEO equity compensation and employee layoffs. In particular, this study seeks to examine CEO stock-based incentives and managerial opportunism behavior for the sample of CEOs of firms announcing layoffs during 1997-2006. I investigate two issues. First, I measure the extent of CEO stock selling in the year of the announcement of employee layoffs. CEOs may want to avoid negative press coverage regarding their compensation because it may send a negative signal to the market if they reduce the companies' work force and may choose to not sell equity, which is consistent with efficient contracting theory. I find different responses by layoff CEOs toward stock option awards and toward option exercise. Layoff CEOs sell substantial shares after receiving stock options to diversify their portfolio risk, especially during a boom economy and with layoffs constituting a greater percentage of a firm's workforce. They, however, retain substantial amount of shares acquired on the exercise of options to avoid intensive negative press coverage on both layoff and option exercises. Second, I examine CEOs' opportunistic behavior to maximize their stock-based compensation value by controlling the timing of stock option awards surrounding layoff announcements, or by controlling the timing of layoff news announcements. My finding provides evidence that CEOs of firms announcing employee layoffs are more likely to receive stock options in advance of value-enhancing layoff announcements but subsequent to value-destroying layoff announcements. However, my results show that these stock prices start declining after news of CEO stock option awards are disclosed in proxy statements (which are published approximately three months after the end of company fiscal years). This may indicate that the stock market responds negatively to this "your pain, my gain" leadership style, as that corporate executives of firms announcing layoffs may have no ethic of shared sacrifice. Overall, I find that negative press coverage may motivate CEOs of firms announcing layoffs to substantially change their portfolio or ownership. Public scrutiny also limits CEOs' ability of conducting opportunistic behavior regarding manipulation of the timing of option awards and layoff announcements.

Stock options constituem uma forma cada vez mais comum de remunerar e reter executivos. Nos Estados Unidos, encontram-se normas que tratam do assunto desde 1948. No Brasil, embora a Lei n. 6.404/1976 já abordasse o assunto, a primeira normatização específica veio com o CPC 10 Pagamento Baseado em Ações, no final de 2008. Esta dissertação é um ensaio teórico, que enfoca o tratamento contábil adotado quando uma empresa oferece, exclusivamente, opções de ações a seus funcionários (sem alternativa de quitação do equivalente em dinheiro), com o objetivo de discutir a questão à luz da Teoria da Contabilidade, considerando que a Contabilidade tem como finalidade oferecer informações necessárias e suficientes à tomada de decisões econômicas. A grande discussão gira em torno do fato de a operação não gerar uma despesa para a empresa, posto que as razões que a caracterizam hoje como tal não encontram fundamento teórico suficiente para justificar essa contabilização. Pelo fato de não ser despesa e também não caracterizar lucro abrangente, a operação é considerada como transação de capital. O custo de oportunidade é também abordado, considerando sua relevância para uma discussão completa. / Stock options has become a common way to reward and retain executives. In United States, we find rules that deal with the subject since 1948. In Brazil, although the Brazilian Law 6.404/76 had already dealt with the subject, the first specific standardization came with CPC10 Share-Based Payment, in the end of 2008. This is a theoretical essay that focuses the accounting treatment when a company offers stock options to their employees, (without the alternative to pay equivalent amount in cash) and in accordance with the Theory of Accountancy, providing enough information for making economic decisions. The main debate is about the fact that this transaction does not generate an expense to the company, since there are not sufficient theoretical basis to justify it as well. Due to the fact that this is not an expense and neither characterize comprehensive income, it could be considered as capital transaction. The opportunity cost is also addressed in this essay, considering its relevance to a complete discussion.

Throughout twentieth century, it has become increasingly common for executives to be remunerated with stock options, contracts which allow the recipient to buy company stock at a predetermined price, thus giving the incentive to maximize the stock price in order to increase the value of the stock option contract. Not only has stock option compensation become increasingly prevalent to executives at most major listed companies, but also to employees at all levels of the firm, both big and small. However, along with the growth in popularity, stock option compensation also became a topic of contention, not only among the general public, but among lobbyists, legislators and academics. This thesis aims to provide a better understanding of stock option compensation practice, with a particular emphasis on the United States, where stock option compensation is most prevalent. The thesis is divided into three chapters: the first chapter deals with establishing a foundational understanding of stock option practice and possible drivers through investigating the literature on the history of stock option compensation practice in the US. The second chapter develops a holistic theoretical model of an optimal stock option compensation package to possibly explain some practice currently considered as excessive. Then lastly, the third chapter empirically tests the validity of possible drivers of executive stock option policy in recent times in an attempt to identify whether current practice is optimal or not. The first chapter is primarily a literature review, covering a series of events over the history of stock option compensation in the US, ranging from its early beginnings in the early twentieth century until the present day. Included in the coverage of significant events are: legislation impacting tax benefits for corporate and for recipients; “landmark” events such as the first case of “broad-based” option compensation resulting in companies following a standard business practice; trends in the stock market; academic theory of the development of agency theory which supports the use of tools such as equity based compensation, and the development of major option valuation models; the possible impact of accounting standards; and the possibly impact of major bankruptcies or unethical behavior directly or indirectly tied to executive stock option compensation. The second chapter follows with a theoretical approach to understanding stock option compensation trends by analyzing the major benefits and costs associated with stock options. The model developed differs to most other existing optimization models as it does not focus on one set of benefits or factors, rather a more holistic approach is taken. Using a holistic approach, this model also helps explain how levels of compensation that are considered excessive under an optimisation model based only incentive benefits, can actually be optimal for the firm once other costs and benefits are incorporated. The model also aims to provide an alternative explanation to the managerial power hypothesis to explain why the buoyancy of the market may be positively correlated with compensation levels. This is explained by the impact of the buoyancy of the market on the likelihood of stock option exercise, and the costs and benefits either unconditional, partially conditional or conditional on options being exercised. In addition, smaller companies are also found to benefit from stock options more than larger firms due to some of the unconditional benefits, in particular, the ability to attract higher quality talent which can also help small firms fulfil untapped potential. Lastly, the model also provides useful insight into the appropriateness of using of foregone option premiums as the economic opportunity cost of granting stock options. The third chapter aims to empirically test the impact of several factors brought up in Chapter One that may help explain changes in compensation that occurred at the turn of the century. These major factors analyzed are: 1) the bull market prior to and the bear market following the market crash of 2000, 2) changes in accounting standards for equity based compensation, and 3) possible public perception of corruption following several major bankruptcies associated with poor ethics in 2002. Mixed evidence is found regarding the impact of market cycles. These findings include cycles to be linked to granting options out-of-the-money, a general inverse relationship with the levels of stock option compensation with the buoyancy of the market, expected for companies managing incentives, and finally there are indications companies ceased granting options based on poor company stock price performance prior to 2001. Other findings indicate the possible influence of accounting standards on economic decisions as well as the broad impact of events surrounding 2001-2, even though they have no economic impact. On the one hand, decreases in stock option compensation levels is shown to be linked to accounting decisions, however, there is insufficient evidence to support the argument that firm-wide decision making to cease granting stock options completely was based on accounting decisions.

Submitted by Renata Lopes (renatasil82@gmail.com) on 2016-10-13T18:36:51Z No. of bitstreams: 1 alinebarretodossantos.pdf: 483356 bytes, checksum: 06d8316d70d3eb94d045a16956965435 (MD5) / Rejected by Adriana Oliveira (adriana.oliveira@ufjf.edu.br), reason: Renata, tem caracteres estranhos no resumo. Verifique, por favor. on 2016-10-22T13:01:30Z (GMT) / Submitted by Renata Lopes (renatasil82@gmail.com) on 2016-10-24T10:25:57Z No. of bitstreams: 1 alinebarretodossantos.pdf: 483356 bytes, checksum: 06d8316d70d3eb94d045a16956965435 (MD5) / Approved for entry into archive by Adriana Oliveira (adriana.oliveira@ufjf.edu.br) on 2016-12-15T11:46:36Z (GMT) No. of bitstreams: 1 alinebarretodossantos.pdf: 483356 bytes, checksum: 06d8316d70d3eb94d045a16956965435 (MD5) / Made available in DSpace on 2016-12-15T11:46:36Z (GMT). No. of bitstreams: 1 alinebarretodossantos.pdf: 483356 bytes, checksum: 06d8316d70d3eb94d045a16956965435 (MD5) Previous issue date: 2008-02-27 / Pode-se afirmar que os Planos de Opções de Compra de Ações ou Employee Stock Options Plans (ESOP), concedidos pelas empresas a seus funcionários, em especial aos executivos, é, das ferramentas de remuneração variável, uma das mais discutidas. O presente estudo empírico objetivou verificar o conteúdo informacional de anúncios de eventos de ESOP no mercado de capitais brasileiro. O estudo compreendeu a análise do retorno anormal de 39 ações observados ao redor dos anúncios relativos à deliberação, outorga, exercício de opção e venda de ações das informações disponíveis para o período compreendido entre Julho de 1994 a Março de 2007, utilizando-se da metodologia de estudo de eventos. Uma análise dos planos das empresas presentes no estudo foi feita de modo a verificar se havia a possibilidade da concessão do direito de exercício de opções a todos os funcionários ou se apenas seriam considerados elegíveis os executivos e pessoas consideradas chaves na empresa. Dos eventos analisados, a deliberação do plano foi o único com algum conteúdo informacional, visto que a distribuição dos retornos anormais acumulados antes e depois do evento foram estatisticamente diferentes para a carteira das ações das empresas que estende o benefício a todos os empregados sendo os valores médios da primeira distribuição menores que os da segunda. Os resultados dos demais eventos (outorga, exercício e venda) não permitiram afirmações consistentes a respeito da geração ou não de valor para o acionista. Assim, os resultados do estudo foram não conclusivos quanto a geração de valor para o acionista quando da ocorrência de eventos relativos ao ESOP. Todavia, há indícios da existência de diferenças no conteúdo informacional transmitido ao mercado em relação aos beneficiários elegíveis para o plano e ao tipo de evento anunciado. / Employee Stock Options Plans (ESOP), granted by companies to their employees, especially to top level executives, are probably one of the most discussed tools of compensation. This empirical study aimed to check the informational content of ESOP events in Brazilian capital market. The study performed an event study covering the abnormal return of 39 stocks around announcements of adoption of plan, options grants, options exercise and stocks sales of the disclosed information from June of 1994 to March of 2007. A descriptive analysis of the companies plans was done in order to verify that there was a possibility of granting options to all employees or only to key employees of the company. The announcement of the adoption of the stock option plans indicates an informational content. The cumulative abnormal returns before and after this event are statistically different for the portfolio of companiess stocks that possibility granting options to all employees. In addition, the returns of the first distribution (before event) are less than the second returns. Other events (options grants, options exercise and stocks sales) showed no consistent result about the generation of value for the shareholder. So, the results were not conclusive regarding the generation of value for the shareholders when the occurrence of ESOP event. Meanwhile, the findings indicate differences in the informational content transmitted to the market concerned of the eligible beneficiaries for the plans and the type of ESOP event.