Download or read book The Valuation and Expensing of Executive Stock Options and Impact on the Value of the Firm written by Rasul M. Raheem and published by . This book was released on 2003 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Accounting for Stock Options written by Nicole Marciano and published by . This book was released on 2004 with total page 246 pages. Available in PDF, EPUB and Kindle. Book excerpt: The task of accounting for equity compensation has never been more controversial and complex than it is today. There exists a viewpoint that one reason for current business scandals was the use of equity compensation arrangements. These arrangements gave companies the ability to issue executive stock options with no financial statement impact. In response to these issues, corporate practices are changing. Stock options are an important component of a company's executive compensation program. Stock options are a significant cost for corporations and an even larger benefit to executives. That is partly the reason why corporations fight to avoid making a charge for stock options against earnings. When a corporation gives something of value to its employees, in return for their services, it is clearly a compensation expense. Employee stock options are a legitimate expense and are considered the cost of doing business in today's economy. Using traditional accounting methodology, expenses are reported on the entity's income statement. Failure to account for stock options is a disservice to investors and a weakness of America's capital markets. Without consistent valuation rules, it is nearly impossible to compare one company's performance with another. This thesis will discuss the current reasons, methods, and effects of standardized expensing of stock options. This thesis (1) proves the role of the Financial Accounting Standards Board in passing accounting standards is being undermined by current investigations of the Securities and Exchange Commission through analysis of The Securities Exchange Acts of 1933 and 1934 and The Sarbanes-Oxley Act of 2002. (2) proves the necessity of accounting for stock options by examining Intel Corporation's financial statements and note disclosures regarding stock option expensing; (3) describes some of the valuation techniques used to value stock options and explains why these techniques are controversial; (4) predicts the impact of standardized expensing of stock options upon the economy, stockholders, and employees ; and (5) explores in detail the rationale and results of expensing stock options through presentation of comprehensive interpretation of Accounting Principles Board Opinions, Financial Accounting Standards Board Statements, and International Accounting Standards Board Exposure Draft. It is important that the public users of financial statements know the true significance of company performance indicators like earnings per share and net income. In addition, investors need to be aware of the reasons for and against an entity's expensing of stock options on the income statement in order to make informed business decisions. Most of the coverage on this topic via the media, periodicals, newspapers, books, and financial statements themselves are too technical to be used as an adequate source. The importance of this study is to organize, supplement and explain accounting for stock options in a logical manner. Hopefully, as a result, the stockholder, employee, and the business executive will be able to use this study as a source to determine the actual accounting and valuation techniques used, and their implications and ramifications.
Download or read book Employee Stock Option Compensation written by Florian Wolff and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 263 pages. Available in PDF, EPUB and Kindle. Book excerpt: Florian Wolff analyses how executives perceive their stock options and how their personal expectations and risk preferences affect the value they assign to them. He shows that stock options may be worth their money because people behave irrationally.
Download or read book An Empirical Analysis of Stock Option Valuation Methodologies in Closely Held U S Corporations written by Mike Fred Balm and published by Universal-Publishers. This book was released on 2009-05 with total page 126 pages. Available in PDF, EPUB and Kindle. Book excerpt: The introduction of fair value accounting for stock options has required private companies to apply stock option valuation methodologies that were designed to be applied to their public counterparts. The two recommended methodologies, the Black-Scholes formula and the Binomial Lattice model, require the valuator to provide an input for estimated volatility; for private companies that do not have a trading history there is limited guidance regarding the determination of volatility, which results in diverging and incorrect estimates. Based on a sample representing 178 companies who filed and completed an IPO in 2006, this study analyzed the accuracy of the recommended valuation methodologies when applied to closely held US corporations. The study outlines the importance of volatility to the value of the options and proceeds to document, by comparing the private (pre-IPO) and public (post-IPO) data, that in 51% of the cases the volatility was either over- or under-stated by more than 10%. In addition, the study shows a bias towards overstatement in the less than 10% variance group. The study further demonstrates that a marginal change in volatility has a significant impact on the company's total stock-based compensation expense and consequently misstates earnings.
Download or read book Impact of stock option expensing on small businesses written by United States. Congress. Senate. Committee on Small Business and Entrepreneurship and published by . This book was released on 2004 with total page 352 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Employee Stock Options Exercise Timing Hedging And Valuation written by Tim Siu-tang Leung and published by World Scientific. This book was released on 2021-07-29 with total page 228 pages. Available in PDF, EPUB and Kindle. Book excerpt: Employee stock options (ESOs) are an integral component of compensation in the US. In fact, almost all S&P 500 companies grant options to their top executives, and the total value accounts for almost half of the total pay for their CEOs. In view of the extensive use and significant cost of ESOs to firms, the Financial Accounting Standards Board (FASB) has mandated expensing ESOs since 2004. This gives rise to the need to create a reasonable valuation method for these options for most firms that grant ESOs to their employees. The valuation of ESOs involves a number of challenging issues, and is thus an important active research area in Accounting, Corporate Finance, and Financial Mathematics.In this exciting book, the author discusses the practical and challenging problems surrounding ESOs from a financial mathematician's perspective. This book provides a systematic overview of the contractual features of ESOs and thoughtful discussions of different valuation approaches, with emphasis on three major aspects: (i) hedging strategies; (ii) exercise timing; and (iii) valuation methodologies. In addition to addressing each of these categories, this book also highlights their connections and combined effects of the cost of ESOs to firms, as well as examines the implications to modeling and valuation approaches. The book features a unique approach that combines stochastic modeling and control techniques with option pricing theory, and provides formulas and numerical schemes for fast implementation and clear illustration.
Download or read book Stock Options written by Barbara Wood and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Until June 2005, firms had a choice in accounting for stock option compensation. The majority of firms elected to disclose option compensation expense in the footnotes of their financial statements. However, after the accounting scandals in the early 2000s, many firms moved from disclosing the expense to recognizing the expense as a charge against earnings. This research examines the reasons that firms would voluntarily elect to adopt option recognition prior to regulatory requirement. The decision to recognize option pay is examined with respect to efficient contracting, earnings management, and information signaling. Firms that elect to expense option pay do so to reduce political costs and potential debt covenant violations. These firms also have greater earnings and lower option costs, reducing the impact of the recognition decision. From an information signaling perspective, firms with greater growth opportunities and greater insider ownership of the firm's stock use their recognition decision to reveal their firm's favorable prospects. Examination of the use of option compensation by firms that voluntarily choose to expense option pay and firms that do not reveals that expensing firms are high quality firms that use option compensation more effectively. The payoff relationship between executive option pay and operating income shows diminishing returns for non-expensing firms and a linear relation for expensing firms, suggesting that non-expensing firms may be over-granting option pay. Additionally, the incentive value of CEO option grants for expensing firms is more closely aligned with shareholder interests than for non-expensing firms. The economic determinants of executive option grants is similar for expensing and non-expensing firms. The residuals from the economic determinants model are used as an explanatory variable in a logistic regression model examining the decision to expense option compensation. Positive residuals indicate the firm grants options in excess of the level predicted by the economics determinants model. Firms over-granting option compensation would be less inclined to increase the transparency of their option program by moving the cost information into the firm's financial statements. The model shows that firms that over-grant executive stock options are less likely to voluntarily recognize option pay.
Download or read book Executive Stock Options written by United States. Congress. Senate. Committee on Homeland Security and Governmental Affairs. Permanent Subcommittee on Investigations and published by . This book was released on 2007 with total page 256 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Accounting for Employee Stock Options written by Judith S. Ruud and published by DIANE Publishing. This book was released on 2008-05 with total page 541 pages. Available in PDF, EPUB and Kindle. Book excerpt: In March 2003, the Financial Accounting Standards Board (FASB) began reconsidering the accounting standard for equity-based compensation. The Board released an exposure draft for a revised standard on Mar. 31, 2004. That revised standard would require firms to recognize the fair value of employee stock options (ESO) as an expense, as was first proposed by FASB more than 10 years ago. This paper assesses whether, under the current accounting standard, firms that grant ESO without recognizing an expense overstate their income. Presents the relevant issues, describes the current standard for ESO, compares the intrinsic value & fair value methods of measure., & weighs the potential economic effects of revising the standard. Ill.
Download or read book The FASB Stock Options Proposal written by United States. Congress. House. Committee on Financial Services. Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises and published by . This book was released on 2004 with total page 234 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Expensing Executive Stock Options written by Don M. Chance and published by . This book was released on 2004 with total page 73 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the issues and controversies over the question of whether executive stock options should be expensed and, if so, how option values should be determined. It identifies and clarifies the key questions and surveys and synthesizes the academic and trade literature. Illustrations and analyses of valuation models are provided. The paper identifies several key issues that have received little attention, such as whether the value to the executive is the cost to the company, how the effects of vesting and forfeiture should be incorporated while maintaining consistency with sound valuation theory, and whether these options should be marked to market. The paper also identifies two areas that have received almost no attention in either the practitioner or academic literature. One is the effect of taxes on the values of these options. The other is the impact, if any, of the influence an executive presumably has on the payoff of the option on the executive's willingness to hold an undiversified portfolio and what effect this factor has on the value of the option.
Download or read book Expensing Executive Stock Options written by Fayez A. Elayan and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This research examines the valuation effect and the factors associated with firms' decisions to expense executive stock options, as well as determinants of market reaction to expensing announcements. The likelihood of expensing is found to be higher for firms subject to fewer agency problems and having a "share-holder friendly" corporate governance structure. These results suggest that the decision to expense is heavily influenced by the extent of discipline, monitoring, and how closely the interests of management and stockholders are aligned. The mean and median announcement-period returns are not found to be significantly different from zero. However, the post-announcement period abnormal returns are negative and statistically significant. The cross-sectional analysis provides support for the prediction that the market reaction to expensing has a differential valuation effect related to the level and structure of management compensation. Namely, companies with a higher percentage of long-term compensation (to total compensation) and a higher percentage of total compensation (to total assets) have negative, or less positive, average abnormal returns. These results are consistent with the first part of the argument advanced by the proponents of expensing options, that recognition causes reported earnings to decline and share prices to follow. The second part of their argument is that boards of directors will then be less inclined to grant excessive options is not supported. The perceived benefits (if capitalized in share price at announcement time) of the boards' action in terms of more transparency, is either absent or does not offset the negative impact of lower earnings and share prices of expensing firms.
Download or read book Stock Options and the New Rules of Corporate Accountability written by Donald P. Delves and published by McGraw Hill Professional. This book was released on 2003-09-22 with total page 226 pages. Available in PDF, EPUB and Kindle. Book excerpt: "As a former CEO and independent director of several corporations, I find Don Delves' discussion of executive compensation -- including detailed and insightful reviews of the issues involving stock options -- to be exceedingly instructive. This is a book that members of compensation committees, indeed all corporate board members should read." -B. Kenneth West, Former CEO, Harris Trust and Savings Bank and member of several corporate boards. Guidelines for curbing today's stock option abuses, and making "payment for performance" the new imperative Stock options account for up to 90 percent of the average CEO's compensation--despite a falling stock market and often plunging corporate earnings. Stock Options and the New Rules of Corporate Accountability examines this hot-button issue, proposing new methodologies and techniques for better aligning stock options, executive compensation, performance rewards, and accounting, and making sense of what has become today's most controversial form of compensation. Executive compensation authority Don Delves explains how high-profile corporations like GE and Coca-Cola have opted to expense stock options and have adjusted their policies to prevent options from becoming disincentive tools, and he shows others how to follow suit. In addition, Delves gives decision makers the knowledge they need to: Increase accountability by treating stock options as expenses Balance options with other incentives Create healthier contracts between employers and employees
Download or read book The Accounting Treatment of Employee Stock Options written by United States. Congress. House. Committee on Financial Services. Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises and published by . This book was released on 2003 with total page 216 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Oversight Hearing on Expensing Stock Options written by United States. Congress. Senate. Committee on Governmental Affairs. Subcommittee on Financial Management, the Budget, and International Security and published by . This book was released on 2004 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Stock Options Grants written by Peter R. Wheeler and published by AdvisorPress. This book was released on 2004 with total page 208 pages. Available in PDF, EPUB and Kindle. Book excerpt: Stock Options + Grants: The Executive's Guide to Equity Compensation provides a comprehensive, easy reading treatment to the complex area of stock options and grants for the busy executive. From the boardroom to the mailroom, individuals with stock options or grants will benefit from the quick reading question and answer format of this book. If you have a question about your stock options or grants, you are likely to find it answered in Stock Options + Grants: The Executive's Guide to Equity Compensation.
Download or read book Valuing Employee Stock Options written by Johnathan Mun and published by John Wiley & Sons. This book was released on 2004-10-13 with total page 335 pages. Available in PDF, EPUB and Kindle. Book excerpt: A comprehensive guide to understanding the implications andapplications of valuing employee stock options in light of the newFAS 123 requirements Due to the new requirements of the Proposed Statement of FinancialAccounting Standards (FAS 123) released by the Financial AccountingStandards Board (FASB)-namely the fact that employee servicesreceived in exchange for equity instruments be recognized infinancial statements-companies are now scrambling to learn how tovalue and expense employee stock options (ESOs). Based on authorDr. Johnathan Mun's consulting and advisory work with the FASBconsulting projects with several Fortune 500 firms, ValuingEmployee Stock Options provides readers with a comprehensive lookat this complex issue. Filled with valuable information on binomial lattice andclosed-form modeling techniques, Valuing Employee Stock Options canhelp financial professionals make informed decisions whenattempting to ascertain the fair-market value of ESOs under the newrequirements. Johnathan Mun, PhD, MBA, MS, CFC, FRM (San Francisco, CA), is VicePresident of Analytical Services at Decisioneering, Inc., themakers of Crystal Ball analytical software. He is also the authorof Applied Risk Analysis (0-471-47885-7), Real Options Analysis(0-471-25696-X), and Real Options Analysis Course (0-471-43001-3),all of which are published by Wiley.
