We gather the option-pricing inputs from several sources. For most years we download the option-pricing model inputs from Compustat. We also hand collect some model inputs from 10K footnotes, because Compustat does not provide complete model inputs data in years 2003 and 2004. Our initial sample begins with 499 firms. We eliminate 17 firms and 39 firms with missing option plans and with one or more missing inputs, respectively. We also exclude 24 firms that have less than six industry participants, 19 firms with insufficient CRSP data to calculate historic volatility, 22 firms with insufficient CRSP data to calculate ex post volatility, and 69 firms with missing regression variables from Compustat and Execucomp. Finally, we delete 69 firms with less than five years of observations in order to get a reliable comparison of managerial discretion over option expenses across the pre and post periods. Thus, each sample firm has two years of observations in the pre period and three years of observations in the post period. Table 1 (Panel A) describes our sample selection. Our final sample comprises 240 firms. Eighty-one firms chose to voluntarily expense stock options and 159 began expensing options once it became mandatory. Description To ensure our final sample is representative of the S&P 500 firms, we compare firm characteristics (growth opportunities, firm size, firm profitability, and industry distribution) between our final and initial firms. Untabulated results show that the final and initial firms do not have significant differences in growth opportunities, firm size, and firm profitability. Furthermore, both of these groups exhibit a similar pattern in
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Restaurants, Hotels 2 1.26% 0.00% Banking 4 2.52% 13 16.05% Insurance 5 3.14% 9 11.11% Trading 4 2.52% 13 16.05% 159 100.00% 81 100.00%