New Towers Perrin Study Shows Expensing Won't Affect Share Prices

In a new study, Towers Perrin analysts Michael Grund and Richard Ericson looked at 335 companies that voluntarily chose to expense options between April 2, 2001, and August 14, 2003 ( "Options Expensing Announcement Has No Impact on Share Prices," March 31, 2004). Share prices were tracked from the day of the company's earnings declarations and the 150 days before and after. The results were then compared to the S&P 500 and MidCap 400 indices. Adjusted for general market movement, the average price of the announcing companies over the period showed no significant variation from the 900 companies in the companies index. The report concluded that options expensing does not affect share prices and that incentive compensation should be driven by actual costs and benefits, not accounting norms. The study is one in a long line of studies now coming to the same conclusion. No study has concluded expensing will significantly affect share prices.