TY - JOUR
T1 - The economic consequences of regulatory changes in employee stock options on corporate bond holders
T2 - SFAS No.123R and structural credit model perspectives
AU - Chen, Tsung-Kang
AU - Liao, Hsien Hsing
AU - Chi, Cheng Ming
PY - 2014/5/1
Y1 - 2014/5/1
N2 - Based upon structural credit models, we investigate the changes of the effects of employee stock options (ESOs) on bond yield spreads due to the revision of SFAS No. 123R (No.123R) which requires expensing ESO amounts. Using American bond observations from year 1995 to 2007, we find that the revision decreases the information benefits of ESOs disclosure. When controlling for credit ratings and potential endogeneity problems, we also find that ESOs are significantly and positively related to bond yield spreads in post-No.123R period while have an opposite effect in pre-No.123R period. We conclude that information effect mainly drives the ESO's effects on credit risk in both pre- and post-No.123R periods.
AB - Based upon structural credit models, we investigate the changes of the effects of employee stock options (ESOs) on bond yield spreads due to the revision of SFAS No. 123R (No.123R) which requires expensing ESO amounts. Using American bond observations from year 1995 to 2007, we find that the revision decreases the information benefits of ESOs disclosure. When controlling for credit ratings and potential endogeneity problems, we also find that ESOs are significantly and positively related to bond yield spreads in post-No.123R period while have an opposite effect in pre-No.123R period. We conclude that information effect mainly drives the ESO's effects on credit risk in both pre- and post-No.123R periods.
KW - Bond yield spreads
KW - Employee stock options
KW - Regulatory changes
KW - SFAS No.123R
KW - Structural credit model
UR - http://www.scopus.com/inward/record.url?scp=84897615122&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2014.01.011
DO - 10.1016/j.jbankfin.2014.01.011
M3 - Article
AN - SCOPUS:84897615122
VL - 42
SP - 381
EP - 394
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
SN - 0378-4266
IS - 1
ER -