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Simplifying Share-Based Payment Accounting: The Influence of FASB ASU No.2016-09 on Earnings and Cash Flow Volatility

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  • Stephanie A. Hairston
  • Jaclyn Robelo

Abstract

In this study, we examine the influence of the adoption of Accounting Standard Update (ASU) No. 2016-09, Compensation- Stock Compensation (Topic 718)- Improvement to Employee Share-based Payment Accounting, on earnings and cash flow volatility for firms that issue share-based compensation to employees. Our findings indicate higher levels of earnings and cash flow volatility after the implementation of ASU 2016-09. We also find that firms that issue more share-based compensation experience lower levels of earnings and cash flow volatility after the standard update. This study provides evidence that the simplified accounting treatment of share-based compensation is associated with significant increases in earnings and cash flow volatility, and that this relationship becomes less pronounced for firms that issue more share-based compensation. The findings of this study should be useful to policy makers, regulators, practitioners, and investors evaluating firms that use share-based compensation.

Suggested Citation

  • Stephanie A. Hairston & Jaclyn Robelo, 2019. "Simplifying Share-Based Payment Accounting: The Influence of FASB ASU No.2016-09 on Earnings and Cash Flow Volatility," Accounting and Finance Research, Sciedu Press, vol. 8(2), pages 1-67, May.
    • Handle: RePEc:jfr:afr111:v:8:y:2019:i:2:p:67
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    References listed on IDEAS

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    1. Edmonds, Christopher T. & Edmonds, Jennifer E. & Leece, Ryan D. & Vermeer, Thomas E., 2015. "Do risk management activities impact earnings volatility?," Research in Accounting Regulation, Elsevier, vol. 27(1), pages 66-72.
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      JEL classification:

      • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General
      • Z0 - Other Special Topics - - General

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