3. Sample
We test our hypotheses using two samples: (1) ExecuComp firms during the SFAS 123 adoption year and (2)
ExecuComp firms during 2001–2005. The former (latter) consists of firms in the 1996 (2001) ExecuComp database that use
stock options to compensate employees and have the requisite Compustat data. The adoption year sample reflects data
from fiscal 1996 (1997) for firms that adopted SFAS 123 in fiscal 1996 (1997). The 2001–2005 sample reflects data for each
year in the 2001–2005 period.5
We classify a firm-year as having a disavowal if the firm includes a statement in that year’s SOC footnote that explicitly
questions the reliability of the SOC estimate or the resulting pro forma income. Nearly 90% of disavowals in our