Reporting Choice and the 1992 Proxy Disclosure Rules

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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.

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