Economic consequences of financial reporting changes: diluted EPS and contingent convertible securities

• 成果类型: Article
• 署名作者: Marquardt, Carol A.; Wiedman, Christine I.
• 署名单位: City University of New York (CUNY) System; Baruch College (CUNY); University of Waterloo
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-007-9040-5
• 发表日期: 2007
• 页码: 487-523
• 关键词: earnings management; STOCK-OPTIONS; BONUS SCHEMES; disclosure; inference; debt

摘要

This paper examines the economic consequences of changes in the financial reporting requirements for contingent convertible securities (COCOs). Using a sample of 199 COCO issuers from 2000 to 2004, we find that issuers are more likely to restructure or redeem existing COCOs to obtain more favorable accounting treatment when the financial reporting impact on diluted earnings per share (EPS) is greater and when EPS is used as a performance metric in CEO bonus contracts. These results provide new evidence that managers are willing to incur costs to retain perceived financial reporting and compensation benefits. We also present evidence of significantly negative stock returns around event dates associated with the financial reporting changes, consistent with investor anticipation of the agency costs associated with the rule change.