| Summary: | 碩士 === 國立彰化師範大學 === 會計學系 === 105 === Different from IAS and GAAP, employee bonus is treated as an item of after-tax-earnings distribution rather than an expense in Taiwan before 2008. Omission recognition of expenses results in understated expenses and overstated income. Therefore, the foreign institutional investors doubt the truth of our financial statements. In order to improve financial transparency and compliance with international standards, the Taiwan financial supervisory commission required public companies to recognize employee bonus as an expense in 2008 (and later).
This paper uses a new approach to investigate whether expensing employee bonus improves the informativeness of earnings. To compare the period before and after expensing employee bonus, I choose the listed companies which contains 4188 observations during the period from 2001 to 2004 and 2009 to 2012 as sample.
The empirical results show that after expensing employee bonus, the change in current stock price contains more information about future earnings than the period before expensing employee bonus. In addition, after expensing employee bonus, the change in current stock price of higher institutional holdings firms contains obviously more information about their future earnings than does the change in the stock price of lower institutional holdings firms. After decomposing earnings into cash flows and accruals, considering the sign of the earnings, and controlling for firm size, growth, and using the other method to measure higher institutional holdings firms, the results are still robust.
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