A Research of Investor Mechanical Hypothesis on Employee Bonus

• Main Authors: Hsieh Hung-Cheng, 謝宏政
• Other Authors: CHANG CHUNG-YUEH
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/33886912525130841016

碩士 === 國立臺北大學 === 會計學系 === 97 === Employee bonus system had been established for many years in Taiwan. However, employee bonus had not been treated as corporate expense but as a distribution of corporate earnings. This accounting treatment was not in accordance with international accounting standards. Thus, the rule of non-expensing employee bonus has been eventually deleted due to the convergence with international accounting standards. However, invertors might not understand employee bonus that should be treated as expense in the income statement, rather than as a distribution of earnings in the statement of retained earnings at the beginning. Accordingly, investors did not consider the factor of director compensation and employee bonus in their investment decision-making so that there had been existence of mechanical hypothesis on employee bonus. Mechanical hypothesis means that investors apply the experiences in the past to interpret the net income without considering the effects of director compensation and employee bonus. This is the first research issue of the study. Secondly, investors should gradually be able to understand the essence of employee bonus over time. This is the second research issue of the study. Finally, investors should be able to fully recognize the essence of employee bonus in the year when the relevant laws amended, and they would not longer follow blindly the announced earnings by firms. This is the third research topic of the study. The sample period is from 1997 to 2007 for Taiwanese listed firms. The research results indicate that: (1) there was existence of mechanical reaction of Taiwanese investors on employee bonus and director compensation. The empirical results indicate that the coefficient of director compensation, employee cash bonus (BOARDCASHBONUS) and employee stock bonus (STOCKBONUS) were significantly positively to stock price. Investors still applied their past investment experiences to make current investment decisions. (2)Even though Taiwanese stock market had mechanical phenomenon on employee bonus, the degrees of the mechanical phenomenon had been decreasing over time. The combined-effect results show that investors adjusted stock price downward with the wide-spreading dispute of employee bonus. The downward effect becomes larger and larger through time. That is, with the development of the event, investors could gradually see through the essence of employee stock. (3)Taiwanese stock market investors did not have mechanical phenomenon in 2007. The combined-effect results show that investors have finally recognized the eroding effect of employee bonus on shareholders equity interests in 2007, and adjusted stock price downward.