The Economics of Restricted Stock and the Section 83(B) Election

39 Pages Posted: 2 Mar 2010

See all articles by Jennifer Blouin

Jennifer Blouin

University of Pennsylvania - Accounting Department

Mary Ellen Carter

Boston College - Department of Accounting; European Corporate Governance Institute (ECGI)

Date Written: February 2010

Abstract

As restricted stock is increasingly important in compensation packages, understanding its unique institutional features becomes paramount. We study the interplay between tax and incentive attributes to show how management appears to be utilizing a unique tax election to generate firm benefits. Interestingly, theoretical models predict a firm’s indifference to an employee’s acceleration of income recognition of restricted stock grants (i.e., make an I.R.C. Section 83(b) election). However, our empirical evidence shows otherwise. Our comparison of a sample of firms that restrict the election to a sample of firms that does not confirms that firms prohibit the election to minimize taxes whereas they require the election for incentive purposes.

Keywords: tax, incentives, compensation, restricted stock

JEL Classification: H25, J33, M52, K34

Suggested Citation

Blouin, Jennifer and Carter, Mary Ellen, The Economics of Restricted Stock and the Section 83(B) Election (February 2010). Available at SSRN: https://ssrn.com/abstract=1561923 or http://dx.doi.org/10.2139/ssrn.1561923

Jennifer Blouin (Contact Author)

University of Pennsylvania - Accounting Department ( email )

1315 SHDH
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Philadelphia, PA 19104-6365
United States
215-898-1266 (Phone)

Mary Ellen Carter

Boston College - Department of Accounting ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

European Corporate Governance Institute (ECGI) ( email )

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1000 Brussels
Belgium

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