We do this in order to show that there are important implications for empirical research studies and inferences regarding tax burdens. The effects of this accounting have not often been taken into account in empirical research yet it may impact the inferences made from the studies. We find that firm disclosures are not always clear as to the amount of the corporate tax benefits from the exercise of stock options.
In addition, in many cases, firms' reported effective tax rates are overstated as are estimates of marginal tax rates and tax burdens using financial statement disclosures. This study is important because it explains the accounting for the tax benefits of stock options, describes the problems this accounting may cause in empirical studies and for financial statement users, and provides some suggestions on adjusting for this accounting to more correctly estimate tax rates and burdens.
Citations Citations References References Limitations of this study exist due to potential measurement error in taxable income, as computing tax costs from the tax expense reported in the firm's financial statements is difficult Gleason and Mills ; Hanlon and Shevlin ; McGill and Outslay ;Erickson et al.
Additionally, while we find evidence that firms with the largest changes in BTD show an increased likelihood of financial distress, we do not identify the particular area of increased risk. Oct Account Horiz. As a result, option compensation appears as a conforming tax strategy during DD"s entire sample period, and the book-tax gap will be understated for firms receiving substantial tax benefits from option deductions.
Equity Compensation and Tax Avoidance: Incentive Effect or Tax Benefits? We also use an ETR variable based on pre-tax operating cash flow as the denominator as suggested by Zimmerman andBuijink et al.
Print Backdating Employee Stock Options: Accounting and Legal Implications. The recognition and valuation implications of employee stock options for publicly traded firms in portugal and spain. Data provided are for informational purposes only. Although carefully collected, accuracy cannot be guaranteed. Publisher conditions are provided by RoMEO. Differing provisions from the publisher's actual policy or licence agreement may be applicable. This publication is from a journal that may support self archiving.More...