Effects of Malaysian employee stock option scheme on stock liquidity, productivity, and earnings management of listed firms

This study investigates whether Malaysian Employee Stock Option Scheme (Esos)is related to stock liquidity and the mechanisms through which the relationship is established. In particular, it examines the effect of Esos on stock liquidity and which of the two conflicting effect of Esos; productivity...

Full description

Saved in:

Bibliographic Details
Main Author:	Katan, Maheran
Format:	Thesis
Language:	English
Published:	2012
Subjects:	Employee stock options Liquidity (Economics) Earnings management
Online Access:	http://psasir.upm.edu.my/id/eprint/32020/1/GSM%202012%2010R.pdf
Tags:	Add Tag No Tags, Be the first to tag this record!

id	my-upm-ir.32020
record_format	uketd_dc
spelling	my-upm-ir.320202016-04-18T02:56:54Z Effects of Malaysian employee stock option scheme on stock liquidity, productivity, and earnings management of listed firms 2012 Katan, Maheran This study investigates whether Malaysian Employee Stock Option Scheme (Esos)is related to stock liquidity and the mechanisms through which the relationship is established. In particular, it examines the effect of Esos on stock liquidity and which of the two conflicting effect of Esos; productivity effect or earnings management effect is responsible for the potential effect of Esos on stock liquidity. To assess stock liquidity of Esos adopting firms, three measures of stock liquidity are employed. They are relative bid-ask spread, turnover ratio and liquidity ratio. The effect of Esos on productivity is measured using Data Envelopment Analysis and to evaluate the level of earnings management practices, this study employs two earnings management models; Modified Jones Model by Dechow, Sloan & Sweeney (1995) and performance-matched discretionary accruals model by Kothari, Leone & Wasley (2005). The empirical results indicate that Esos adoption has statistically significant effect on the firm’s stock liquidity. In terms of the productivity effect of Esos adoption,this study finds no evidence of statistically significant impact of Esos on firm productivity. With regards to the effect of Esos on earnings management practices,this study documents a statistically significant link between Esos and earnings management. A multivariate analysis is conducted to test the association between Esos and earnings management while controlling for other factors proposed in the literature as motivation for earnings management. The results of the multivariate analysis demonstrate a positive and highly significant relationship between Esos and earnings management. To further verify whether the increase in stock liquidity is driven by productivity enhancement or earnings manipulation, the relationship between stock liquidity, productivity and earnings management is tested while controlling for other determinants of stock liquidity. The result of the multivariate analysis shows insignificant relationship between stock liquidity and productivity but significant relationship between stock liquidity and earnings management. Overall, this study finds that the significant increased in stock liquidity after implementation of Esos is supported by manipulated earnings rather than the fundamental increase in productivity. It can be concluded that these results are consistent with rent-seeking theory which states that instead of drawing the interest of stockholders and employees together through productivity enhancement, Esos induces opportunistic earnings management practices. The existing Esos guideline has to be improved to ensure that Esos motivates employees to increase their productive efforts and at the same time encourages and fosters managerial virtues. Employee stock options Liquidity (Economics) Earnings management 2012 Thesis http://psasir.upm.edu.my/id/eprint/32020/ http://psasir.upm.edu.my/id/eprint/32020/1/GSM%202012%2010R.pdf application/pdf en staffonly phd doctoral Universiti Putra Malaysia Employee stock options Liquidity (Economics) Earnings management Graduate School of Management
institution	Universiti Putra Malaysia
collection	PSAS Institutional Repository
language	English
topic	Employee stock options Liquidity (Economics) Earnings management
spellingShingle	Employee stock options Liquidity (Economics) Earnings management Katan, Maheran Effects of Malaysian employee stock option scheme on stock liquidity, productivity, and earnings management of listed firms
description	This study investigates whether Malaysian Employee Stock Option Scheme (Esos)is related to stock liquidity and the mechanisms through which the relationship is established. In particular, it examines the effect of Esos on stock liquidity and which of the two conflicting effect of Esos; productivity effect or earnings management effect is responsible for the potential effect of Esos on stock liquidity. To assess stock liquidity of Esos adopting firms, three measures of stock liquidity are employed. They are relative bid-ask spread, turnover ratio and liquidity ratio. The effect of Esos on productivity is measured using Data Envelopment Analysis and to evaluate the level of earnings management practices, this study employs two earnings management models; Modified Jones Model by Dechow, Sloan & Sweeney (1995) and performance-matched discretionary accruals model by Kothari, Leone & Wasley (2005). The empirical results indicate that Esos adoption has statistically significant effect on the firm’s stock liquidity. In terms of the productivity effect of Esos adoption,this study finds no evidence of statistically significant impact of Esos on firm productivity. With regards to the effect of Esos on earnings management practices,this study documents a statistically significant link between Esos and earnings management. A multivariate analysis is conducted to test the association between Esos and earnings management while controlling for other factors proposed in the literature as motivation for earnings management. The results of the multivariate analysis demonstrate a positive and highly significant relationship between Esos and earnings management. To further verify whether the increase in stock liquidity is driven by productivity enhancement or earnings manipulation, the relationship between stock liquidity, productivity and earnings management is tested while controlling for other determinants of stock liquidity. The result of the multivariate analysis shows insignificant relationship between stock liquidity and productivity but significant relationship between stock liquidity and earnings management. Overall, this study finds that the significant increased in stock liquidity after implementation of Esos is supported by manipulated earnings rather than the fundamental increase in productivity. It can be concluded that these results are consistent with rent-seeking theory which states that instead of drawing the interest of stockholders and employees together through productivity enhancement, Esos induces opportunistic earnings management practices. The existing Esos guideline has to be improved to ensure that Esos motivates employees to increase their productive efforts and at the same time encourages and fosters managerial virtues.
format	Thesis
qualification_name	Doctor of Philosophy (PhD.)
qualification_level	Doctorate
author	Katan, Maheran
author_facet	Katan, Maheran
author_sort	Katan, Maheran
title	Effects of Malaysian employee stock option scheme on stock liquidity, productivity, and earnings management of listed firms
title_short	Effects of Malaysian employee stock option scheme on stock liquidity, productivity, and earnings management of listed firms
title_full	Effects of Malaysian employee stock option scheme on stock liquidity, productivity, and earnings management of listed firms
title_fullStr	Effects of Malaysian employee stock option scheme on stock liquidity, productivity, and earnings management of listed firms
title_full_unstemmed	Effects of Malaysian employee stock option scheme on stock liquidity, productivity, and earnings management of listed firms
title_sort	effects of malaysian employee stock option scheme on stock liquidity, productivity, and earnings management of listed firms
granting_institution	Universiti Putra Malaysia
granting_department	Graduate School of Management
publishDate	2012
url	http://psasir.upm.edu.my/id/eprint/32020/1/GSM%202012%2010R.pdf
_version_	1747811642216808448

Effects of Malaysian employee stock option scheme on stock liquidity, productivity, and earnings management of listed firms

Similar Items