New economy accounting : why are broad-based stock option plans so attractive?
AbstractSeveral studies indicate that stock option plans are becoming more and more a substantial part of compensation schemes in U.S. companies. This paper shows the tax implications and accounting rules for stock option plans. By comparison of the tax and accounting rules for different compensation schemes we show that the popularity of stock options may be mainly due to the U.S. Generally Accepted Accounting Principles (US-GAAP) which require no charge to earnings for speciffically designed stock option plans if a company opts for footnote disclosure. Thus, for these companies the stated earnings are higher than their economical situations justify. Based on a case study of 20 companies out of the S&P 500 which rely heavily on employee stock options we arrive at the conclusion that the amount of hidden compensation cost can reach economically signifficant amounts. Since this topic seems to be widely neglected it is questionable whether stock prices reflect these hidden cost. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research in its series ZEW Discussion Papers with number 00-39.
Date of creation: 2000
Date of revision:
Accounting; US-GAAP; stock option programs;
Find related papers by JEL classification:
- G0 - Financial Economics - - General
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- J. Nellie Liang & Steven A. Sharpe, 1999. "Share repurchases and employee stock options and their implications for S&P 500 share retirements and expected returns," Finance and Economics Discussion Series 1999-59, Board of Governors of the Federal Reserve System (U.S.).
- David Yermack, 1996.
"Companies' Modest Claims About the Value of CEO Stock Option Awards,"
New York University, Leonard N. Stern School Finance Department Working Paper Seires
96-42, New York University, Leonard N. Stern School of Business-.
- Yermack, David, 1998. " Companies' Modest Claims about the Value of CEO Stock Option Awards," Review of Quantitative Finance and Accounting, Springer, vol. 10(2), pages 207-26, March.
- Johnson, Shane A. & Tian, Yisong S., 2000. "The value and incentive effects of nontraditional executive stock option plans," Journal of Financial Economics, Elsevier, vol. 57(1), pages 3-34, July.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.