For example, Watts and Zimmerman (1978) report that economic self-interests motivate a large firm to lobby for an accounting standard that reduces pro forma net income.
Yet, other studies (Martens and Stevens, 1993; Dechow et al., 1996) find no relationship between lobbying behaviour and the effect of the proposed standard on net income. The present study extends prior research by examining whether economic self-interests affect corporate lobbying on disclosure, especially on
Prior to the 1993 Exposure Draft (ED) on FAS 123, Accounting for Stock-Based Compensation, corporations provided relatively little information on the value of stock-based compensation (SBC) held by top management. Essentially, corporations reported the SBC for only the top five executives and only in annual proxy statements as required by the U.S. Securities and Exchange Commission (SEC).
The ED proposed recognizing for the first time in annual reports the amount of SBC for all employees. Comment letters to the FASB on FAS 123 almost exclusively opposed recognition of SBC. However, as Walker and Robinson (1993) note, a careful analysis of the substance of comment letters (i.e., analysis beyond simply counting 'yes/no' votes on recognition) can provide additional insights into the politics of the standard-setting process. The current analysis of the comment letters reveals that managers supported varying venues and formats of disclosure. Thus, the varying responses to the FASB on the ED for FAS 123 provide a unique opportunity to examine whether economic self-interest motivates lobbying on venues and formats of disclosure of information (Breton Wall Street Journal, 5 November 1993).
The results of this study indicate that differences in corporate lobbying positions on disclosure are related to the value of corporate SBC. In particular, the more wealth management holds in the form of stock options, the more likely managers will oppose disclosing SBC information in the annual reports, even though proxy statements already disclose SBC information for the top five executives of the firm. Further, this result holds true even when the top five managers hold virtually the entire employee SBC, and therefore already disclose most of total SBC in proxy statements. These results reflect lobbying on venue choice.
The study also finds that managers' economic self-interest explains lobbying on summary disclosure of SBC versus pro forma recognition of SBC. This reflects lobbying on format choice. Summary disclosure includes footnote details of SBC for all employees, similar to that reported in the proxy statement for the top five executives (including, for example, grant price and date, exercise price, number of options, and net realizable value of options). Corporations that grant relatively more SBC are more likely to lobby for summary footnote disclosure rather than pro forma recognition of SBC.
MOTIVATION AND HYPOTHESIS DEVELOPMENT
While it seems clear that economic self-int