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• Case | HBS Case Collection | 2013

  Say on Pay at The Walt Disney Company

  Ian D. Gow and Gaizka Ormazabal

  This case focuses on the lead-up to Disney's 2012 annual meeting where Disney would face a vote on the compensation package of its CEO, Robert Iger. Leading proxy advisory firms were recommending that shareholders reject the proposed compensation.

  Keywords: Executive Compensation; shareholder votes; Executive Compensation; Business and Shareholder Relations; Media and Broadcasting Industry; United States;

  Citation:

  Gow, Ian D., and Gaizka Ormazabal. "Say on Pay at The Walt Disney Company." Harvard Business School Case 113-052, January 2013.

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• Article | Review of Accounting Studies | July 4, 2012

  Why Do Pro Forma and Street Earnings Not Reflect Changes in GAAP? Evidence from SFAS 123R

  Ian D. Gow, Mary E. Barth, Daniel Taylor, Ian D. Gow, Mary E. Barth and Daniel Taylor

  This study examines how key market participants—managers and analysts—responded to SFAS 123R's controversial requirement that firms recognize stock-based compensation expense. Despite mandated recognition of the expense, some firms' managers exclude it from pro forma earnings and some firms' analysts exclude it from Street earnings. We find evidence consistent with managers opportunistically excluding the expense to increase earnings, smooth earnings, and meet earnings benchmarks but no evidence that these exclusions result in an earnings measure that better predicts future firm performance. In contrast, we find that analysts exclude the expense from earnings forecasts when exclusion increases earnings' predictive ability for future performance and that opportunism generally does not explain exclusion by analysts incremental to exclusion by managers. Thus our findings indicate that opportunism is the primary explanation for exclusion of the expense from pro forma earnings and predictive ability is the primary explanation for exclusion from Street earnings. Our findings suggest the controversy surrounding the recognition of stock-based compensation expense may be attributable to cross-sectional variation in the relevance of the expense for equity valuation, as well as to differing incentives of market participants.

  Citation:

  Gow, Ian D., Mary E. Barth, and Daniel Taylor. "Why Do Pro Forma and Street Earnings Not Reflect Changes in GAAP? Evidence from SFAS 123R." Review of Accounting Studies 17, no. 3 (July 4, 2012): 526–562.

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• Article | Review of Accounting Studies | July 4, 2012

  Why Do Pro Forma and Street Earnings Not Reflect Changes in GAAP? Evidence from SFAS 123R

  Ian D. Gow, Mary E. Barth, Daniel Taylor, Ian D. Gow, Mary E. Barth and Daniel Taylor

  This study examines how key market participants—managers and analysts—responded to SFAS 123R's controversial requirement that firms recognize stock-based compensation expense. Despite mandated recognition of the expense, some firms' managers exclude it from pro forma earnings and some firms' analysts exclude it from Street earnings. We find evidence consistent with managers opportunistically excluding the expense to increase earnings, smooth earnings, and meet earnings benchmarks but no evidence that these exclusions result in an earnings measure that better predicts future firm performance. In contrast, we find that analysts exclude the expense from earnings forecasts when exclusion increases earnings' predictive ability for future performance and that opportunism generally does not explain exclusion by analysts incremental to exclusion by managers. Thus our findings indicate that opportunism is the primary explanation for exclusion of the expense from pro forma earnings and predictive ability is the primary explanation for exclusion from Street earnings. Our findings suggest the controversy surrounding the recognition of stock-based compensation expense may be attributable to cross-sectional variation in the relevance of the expense for equity valuation, as well as to differing incentives of market participants.

  Citation:

  Gow, Ian D., Mary E. Barth, and Daniel Taylor. "Why Do Pro Forma and Street Earnings Not Reflect Changes in GAAP? Evidence from SFAS 123R." Review of Accounting Studies 17, no. 3 (July 4, 2012): 526–562.

  CiteView DetailsRead NowRead Now

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