scholarly journals The Implications Of Expensing Stock Options On Corporate Governance

2011 ◽  
Vol 5 (9) ◽  
Author(s):  
Vinita Ramaswamy ◽  
C. Joe Ueng
Keyword(s):  
Corporate Governance ◽  
Executive Compensation ◽  
Stock Options ◽  
Principal Agent ◽  
Employee Stock Options ◽  
Font Size ◽  
Income Statement ◽  
Principal Agent Problem

<p class="MsoNormal" style="text-align: justify; margin: 0in 34.2pt 0pt 0.5in; mso-pagination: none; mso-layout-grid-align: none; punctuation-wrap: simple;"><span style="font-size: 10pt; mso-bidi-font-style: italic;"><span style="font-family: Times New Roman;">This paper examines the roots of the abuse of stock options, finding it centered on a principal/agent problem that arises when employee stock options are not required to be expensed in the income statement.<span style="mso-spacerun: yes;">&nbsp; </span>The failure of corporate governance, including the proper oversight of executive compensation, and the failure of FASB to require expensing stock options, leads to a management-centric organization whose motives diverge from the interests of shareholders.</span></span></p>

scholarly journals Accounting For Stock Options: A Historical Perspective

2011 ◽  
Vol 1 (5) ◽  
Author(s):  
Paul J. Carruth
Keyword(s):  
Executive Compensation ◽  
Historical Development ◽  
Stock Options ◽  
Historical Perspective ◽  
Effective Means ◽  
Fair Value ◽  
Font Size ◽  
Reporting Requirements ◽  
Income Statement

<p class="MsoNormal" style="text-align: justify; margin: 0in 40.5pt 0pt 0.5in;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">In recent years stock options have become one of the most dominant and controversial forms of executive compensation.<span style="mso-spacerun: yes;">&nbsp; </span>Stock options are controversial not only because of the sheer magnitude of some executive option grants, but also because of the method used to account for them.<span style="mso-spacerun: yes;">&nbsp; </span>Currently, the fair value of stock options does not have to be reported as compensation expense on the income statement.<span style="mso-spacerun: yes;">&nbsp; </span>Critics maintain this approach results in an inflated and misleading amount of reported net earnings.<span style="mso-spacerun: yes;">&nbsp; </span>This paper addresses the role of stock options as an effective means of employee compensation and traces the historical development of the accounting treatment of stock options.<span style="mso-spacerun: yes;">&nbsp; </span>In addition, the current reporting requirements for options are discussed along with recommendations for improving the manner in which stock options are accounted<span style="mso-spacerun: yes;">&nbsp; </span>for.<span style="mso-spacerun: yes;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span></span></span></p>

scholarly journals Planos de Opções de Compra de Ações e o Valor das Companhias Brasileiras

2012 ◽  
Vol 10 (1) ◽  
pp. 105
Author(s):  
Fernanda Finotti Cordeiro Perobelli ◽  
Bruno De Souza Lopes ◽  
Alexandre Di Miceli da Silveira
Keyword(s):  
Corporate Governance ◽  
Data Analysis ◽  
Panel Data ◽  
Best Practices ◽  
Stock Price ◽  
Stock Options ◽  
Stock Exchange ◽  
Panel Data Analysis ◽  
Employee Stock Options ◽  
Exercise Price

This work investigates the effects of Employee Stock Options Plans (ESOP) on the value of companies in the Brazilian Stock Exchange (BM&FBOVESPA). An ESOP is a mechanism of variable compensation, generally offered to executives, having the alignment of interests between managers and shareholders as one of its goals. To achieve this purpose, a panel data analysis was used in order to try measuring if the ESOP generated or not value to shareholders. The results show that there is evidence that the ESOP only generates wealth for shareholders when it is well-set, specifically when the exercise price is fixed at-money or out-of-money. An increase in the stock price is also achieved when companies adopt best practices of corporate governance and the ESOP by more than three years.

scholarly journals Accounting For Stock Based Employee Compensation: A Continuing Controversy

2011 ◽  
Vol 3 (4) ◽  
Author(s):  
William Wrege ◽  
Mark Myring ◽  
Joe Schroeder
Keyword(s):  
Executive Compensation ◽  
Stock Options ◽  
Accounting Standards ◽  
Market Value ◽  
Stock Option ◽  
Font Size ◽  
Significant Component ◽  
Employee Compensation ◽  
Compensation Contracts ◽  
History Of

<p class="MsoBlockText" style="text-align: justify; margin: 0in 0.6in 0pt 67.5pt;"><span style="font-size: x-small;"><span style="font-family: Times New Roman;">Stock options represent an increasingly significant component of executive compensation. Theoretically, the inclusion of stock options in executive compensation contracts motivates managers to take actions that increase the market value of the firm's stock. Accounting standards regulating the treatment of stock options continue to be controversial. The focus of this paper is to examine the accounting treatment of stock options. We begin by outlining the controversial history of accounting for stock options.<span style="mso-spacerun: yes;">&nbsp; </span>Next, we examine the alternative accounting treatments for stock option.<span style="mso-spacerun: yes;">&nbsp; </span>Finally, we critique the proposed changes to the methods of accounting for stock options.<strong style="mso-bidi-font-weight: normal;"></strong></span></span></p>

Insider Holding Requirements, Stock Options, and Stock Appreciation Rights

2001 ◽  
Vol 16 (3) ◽  
pp. 227-248 ◽  
Author(s):  
Steven Balsam ◽  
Wonsun Paek
Keyword(s):  
Executive Compensation ◽  
Stock Options ◽  
Significant Interaction ◽  
Securities And Exchange Commission ◽  
Employee Stock Options ◽  
Significant Interaction Effect ◽  
Compensation Contracts ◽  
Book Value ◽  
Rule Change ◽  
Compensation Methods

This study examines how a Securities and Exchange Commission rule change affected the design of executive compensation contracts. It shows that a change in insider holding requirements for employee stock options led to a widespread decrease in the use of stock appreciation rights. Further, we find firms that decrease their use of stock appreciation rights compensate employees by increasing their use of employee stock options. The Securities and Exchange Commission rule change provides a unique opportunity to examine the use of compensation methods as it caused firms to examine their policies and make an active decision to modify their practices. Cross-sectionally, we find the likelihood a firm decreases its use of stock appreciation rights positively associated with the magnitude of expense associated with stock appreciation rights, the firm's use of income-increasing accounting methods, leverage, and the ratio of market to book value of assets. We also find a significant interaction effect for the magnitude of expense when interacted with profitability.

scholarly journals Employee Stock Options And Market Efficiency

2011 ◽  
Vol 23 (2) ◽  
Author(s):  
Judy A. Laux ◽  
Abdou N’Dir
Keyword(s):  
Market Efficiency ◽  
Stock Prices ◽  
Stock Options ◽  
Deleterious Effect ◽  
Market Reaction ◽  
Financial Statements ◽  
Fair Value ◽  
Employee Stock Options ◽  
Income Statement

This study investigates market reaction to SFAS 123 Revised, “Share Based Payment,” which requires companies to recognize the fair value of employee stock options as expense on the income statement. Using a sample of 128 firms for the 2004 and 2005 periods, we find that markets have efficiently incorporated information formerly disclosed only in footnotes to the financial statements, effectively nullifying the argument that formally recognizing the expense would have a deleterious effect on stock prices of firms offering this type of compensation.

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