Do companies exploit accounting rules for broad-based stock option plans? : a case study

Hess, Dieter; Lüders, Erik

Do companies exploit accounting rules for broad-based stock option plans? : a case study

Dateien

dp00_27.pdfGröße: 226.29 KBDownloads: 386

Datum

2000

Autor:innen

Hess, Dieter

Lüders, Erik

Open Access-Veröffentlichung

Open Access Green

Sammlungen

Wirtschaftswissenschaften

Publikationstyp

Working Paper/Technical Report

Publikationsstatus

Published

Zusammenfassung

Several studies indicate that stock option plans are becoming more and more a substantial part of compensation schemes in U.S. companies. This paper argues that for an employer the attractiveness of stock options arises from the U.S. Generally Accepted Accounting Principles (US-GAAP) which require no charge to earnings for specifically designed stock option plans if a company opts for footnote disclosure. This poses a substantial problem for security analysis since a firm's earnings may be considerably upward biased. 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 be significant. For some of the companies the misrepresentation of stated earnings exceeds usual immateriality limits by far. Therefore, we propose that the fair value method of Statement No. 123 Financial Accounting Standards Board should be made compulsory in order to restore the true and fair view which 'income as stated' should provide.

Fachgebiet (DDC)

330 Wirtschaft

Zitieren

ISO 690

HESS, Dieter, Erik LÜDERS, 2000. Do companies exploit accounting rules for broad-based stock option plans? : a case study

BibTex

@techreport{Hess2000compa-11920,
  year={2000},
  series={CoFE-Diskussionspapiere / Zentrum für Finanzen und Ökonometrie},
  title={Do companies exploit accounting rules for broad-based stock option plans? : a case study},
  number={2000/27},
  author={Hess, Dieter and Lüders, Erik}
}

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