Reporting Choice and the 1992 Proxy Disclosure Rules

Abstract

Disclosure rules adopted by the Securities and Exchange Commission in 1992 allowed limited managerial discretion in reporting the value of stock options granted. I provide evidence that managers adopted valuation methodologies that reduced reported or perceived compensation and that also reduced potential accounting charges for stock options. I interpret this evidence as supporting the hypothesis that managers bear nonpecuniary costs from high reported levels of compensation—through increased political or shareholder pressure—and adopt reporting methodologies that reduce these costs.