SBC Flashcards
What is the main research question of the paper?
Whether analysts’ treatment of stock-based compensation (SBC) contributes to equity overvaluation.
What is stock-based compensation (SBC)?
Non-cash compensation paid to employees in the form of stock or options.
Why is SBC considered a real cost?
It causes either dilution (issuing new shares) or leads to cash outflows (share buybacks).
What does SBC intensity measure?
SBC / Operating Expenses — a measure of how heavily a firm relies on SBC.
How do analysts typically treat SBC in DCF models?
Most analysts exclude SBC by adding it back as a non-cash item, inflating valuations.
What are TP_IMPRET and TP_FERR?
TP_IMPRET is the implied return from target price; TP_FERR is the forecast error compared to actual return.
What was found about analysts who include SBC as an expense?
They produce unbiased, more accurate target prices.
What happens to valuation ratios and returns as SBC increases?
Valuation ratios increase, but future returns decrease — suggesting overvaluation.
Which valuation method was most analyzed in the paper?
Discounted Cash Flow (DCF) model.
What is the paper’s implication for regulators?
Regulators should scrutinize non-GAAP earnings exclusions like SBC to prevent systematic overvaluation.
