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The effects of SFAS-123R on corporate investment

Author

Listed:
  • Heeick Choi
  • Hyung Tae (Ted) Kim
  • Seung Won Lee
  • Songtao Mo

Abstract

This study examines the effects of mandatory expensing of stock options on corporate investment after the passage of SFAS-123R. First, we find an increase in corporate investment such as R&D investment and capital expenditure in the post-SFAS-123R period. Second, we find that stock-based compensation such as stock option compensation and restricted stock in the post-SFAS-123R period is positively related to investment. Our findings suggest that SFAS-123R discourages the opportunistic use of stock option compensation. The use of option compensation in the post-SFAS-123R era appears to encourage managers to pursue more long-term investment, which suggests that the SFAS-123R has had positive consequences.

Suggested Citation

  • Heeick Choi & Hyung Tae (Ted) Kim & Seung Won Lee & Songtao Mo, 2020. "The effects of SFAS-123R on corporate investment," Applied Economics Letters, Taylor & Francis Journals, vol. 27(10), pages 803-809, June.
    • Handle: RePEc:taf:apeclt:v:27:y:2020:i:10:p:803-809
    DOI: 10.1080/13504851.2019.1646394
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