Simplifying Share-Based Payment Accounting: The Influence of FASB ASU No.2016-09 on Earnings and Cash Flow Volatility

Stephanie A. Hairston, Jaclyn Robelo

Abstract


In this study, we examine the influence of the adoption of Accounting Standard Update (ASU) No. 2016-09, Compensation- Stock Compensation (Topic 718): Improvement to Employee Share-based Payment Accounting, on earnings and cash flow volatility for firms that issue share-based compensation to employees. Our findings indicate higher levels of earnings and cash flow volatility after the implementation of ASU 2016-09. We also find that firms that issue more share-based compensation experience lower levels of earnings and cash flow volatility after the standard update. This study provides evidence that the simplified accounting treatment of share-based compensation is associated with significant increases in earnings and cash flow volatility, and that this relationship becomes less pronounced for firms that issue more share-based compensation. The findings of this study should be useful to policy makers, regulators, practitioners, and investors evaluating firms that use share-based compensation.


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DOI: https://doi.org/10.5430/afr.v8n2p67

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Accounting and Finance Research
ISSN 1927-5986 (Print)   ISSN 1927-5994 (Online)

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