tailieunhanh - The Controversy over Accounting for Stock Options: A Literature Review

A popular use of options known as "the 90/10 strategy" involves placing 10% of your investment funds in long (purchased) calls and the other 90% in a money market instrument (in our examples we use T-bills) held until the option's expiration. This strategy provides both leverage (from the options) and limited risk (from the T-bills), allowing the investor to benefit from a favorable stock price move while limiting the downside risk to the call premium minus any interest earned on the T-bills. Assume XYZ is trading at $60 per share. To purchase 100 shares of XYZ would require an investment of $6,000, all of which would. | International Research Journal of Finance and Economics ISSN 1450-2887 Issue 53 2010 EuroJournals Publishing Inc. 2010 http The Controversy over Accounting for Stock Options A Literature Review Sandra Alves School of Accountancy and Administration University of Aveiro Campus Universitário de Santiago 3810-193 Aveiro Portugal Abstract Stock options are a popular instrument used by companies to attract retain and motivate their employees. They have also been seen as an effective mechanism for aligning the interests of managers more closely with those of shareholders with favourable implications for longer-term company performance. However the appropriate accounting treatment of stock options has been a matter of much debate and limited consensus. This paper provides a literature review about the controversy over accounting for stock options. Keywords Stock options accounting treatment FASB IASB G4 1 Paper. JEL Classification Codes M40 M41. 1. Introduction The success of a company depends to a large extent upon its human resources abilities with the incentives system generally understood as being one of the key mechanisms influencing its performance. Agency theory suggests that compensation policy should be designed in such a way as to provide management with incentives to select and implement actions which increase shareholder wealth Jensen and Murphy 1990 . A manager s total compensation package normally consists of three components wages benefits and incentives. Incentive compensation is considered an important mechanism which encourages and motivates managers to enhance corporate performance. In recent years alternative incentive methods to premium cash payments have been observed. It is along these lines by which employee stock options ESO arise also known as stock option plans or simply by stock options. In fact stock options have been a common feature of employee remuneration not only for managers but also for many other .

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