The Market Effect of Expensing Employee Bonus-A Test of Fixation Hypothesis
Date Issued
2008
Date
2008
Author(s)
Fang, Pei-Hsuan
Abstract
Abstract After debating for about ten years, employee bonus is expensed as it should be in 2008. This accounting principle change would lower the accounting earnings and make a good chance to test whether capital market of Taiwan is consistent with efficient market hypothesis or functional fixation hypothesis. This study is conducted by interviewing 7 categories of interviewees (including 10 accounting professors, 10 commerce (other than accounting) professors, 15 cetified public accountants, 15 auditors, 15 workers of related agencies, 15 managers of listing companies and 15 investors) and testing them by designed questions at the same time. This study also conducts a survey about this policy. The results show at least 41 interviewees would change their evalution of stock price or profitability of a company only because its employee bonus is expensed and the accounting earnings becomes lower. And there are 30 interviewees who could distinguish the lower earnings is due to the change of accounting method but expect most of the investors couldn’t. Therefore, they still think this policy would lower the stock price. And there are up to 72 interviewees think this policy would lower the stock price. Moreover, 56 interviewees think this treatment would affect stock price from late 2007 and regard capital market of Taiwan as a weak form efficiency market. According to the findings, this study is prone to support functional fixation hypothesis. This study also indicates that almost all interviewees support this policy and its accounting treatment. There are up to 92 interviewees remark employee bonus should be expensed and 88 interviewees regard fair market value as a better treatment than par vlue method. But using what date or periods of time of stock price to calculate the shares of employee stock bonus is still controversial. To avoid manipulating, 35 interviewees consider that periods of time provide a better basis for calculation than a single date. This finding may offer a chance to rethink the the accounting treatment of this part.
Subjects
Expensing employee bonus
Stock price
Efficient market
Functional fixation
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