Research Report On Risk Taking Incentives Generated By Stock Option Plans

As the responsibilities of the global harmonization of accounting standards IFRS and GAAP transfer to IASB, FASB’s influence is waning. Advantages of the convergence include high quality financial reporting, which lowers cost of capital for investors and the cost of borrowing for companies. However, there are disadvantages to be noted, such as the costs of introducing IFRS to current and potential accountants and the risk of reducing the uniformity of financial reports due to the lax rulings of IFRS, which promotes earnings management amongst companies. Although arguments regarding the convergence remain prevalent, the completion of IFRS and GAAP is inevitable. Come year 2015, accountants, investors, and companies alike will discover whether or not the pros outweighed the cons; or vice versa.

The globalization of business activity has resulted in the need for a uniform set of accounting rules in all countries. With U.S. corporations doing so much business in other countries, it is imperative that the SEC and international regulatory boards devise a set of rules and regulations that would benefit both parties. If this did not happen, international companies would be able to do whatever they wanted without repercussion because of the discrepancies in the differing sets of rules. Accomplishing this universal set of rules would allow companies to list securities in any market without having to prepare more than one set of financial statements. There have been so many

For each measure, I attempt to build the best empirical mapping as made available by my data. First, I calculate a firm’s value by adding the book value of debt to the market value of equity. I measure profitability as net income over firm value, financial leverage as book debt over market equity, capitalization as book equity over assets, growth as market equity over book equity, and volatility as the quarterly standard deviation of daily log returns. For ease of replication, I collect these variable definitions into the appendix. Note that although the growth variable appears similar to the usual Tobin’s q measure of non-bank firms, banks by design have a large proportion of their assets held as debt in the form of deposits, so the usual approximation of neglecting liabilities does not apply. For bank-specific variables, I also compute total income as non-interest income plus net interest income. I construct the non-interest income ratio (NIIR) by dividing non-interest income by total income, the non-bank subsidiary ratio (NBSR) by dividing the count of non-bank subsidiaries (NAICS codes not equal to 5221) by total subsidiaries, and normalize loans and debt by dividing by value. All figures use the fullest available information. All tables drop all observations missing any relevant variables. I report all ratios in percentage terms. To control for outliers outside the scope of this paper, all ratios are winsorized at the 1% level, where the sample is across all available bank-quarters in the

Literature includes CEO cash compensation as the proxy for the CEO’s level of risk aversion (Rogers, 2002; Nam et al., 2003; Coles et al., 2006). CEOs with higher cash compensation are more likely to become more risk avers. CEO’s with high cash compensation will seek to avoid risk. I measure cash compensation as the natural logarithm of the salary and the natural logarithm bonus. Following existing literature (e.g., Guay, 1999; Rajgopal and Shevlin, 2002) the sensitivity of CEO wealth to stock price is also included as an additional control variables for CEO risk aversion in the risk-taking incentive model.

I think the stock option compensation plan is not a bad idea when it comes to paying a corporation's board of director members. The board of director members pay option plays a vital role in the success of an organization. I think that theses board members need to be paid based on the company's financial profitability and the economic growth they help provide to the business. If the board members are paid a set wage there is no need for them to strive to excel the standard because their pay is already set in stone. If businesses compensate their board members according to the increased stock sales in the firm the board members must perform well to receive the pay they deserve. Board members have normally been compensated a yearly salary

Stock options are often used to increase motivation for the high level managers and executives to improve a company's growth. There are some problems with stock options though. One of the roots of these problems is a practice of backdating option grants. This is done to present a stock price at a lower level than it actually was on a date of granting. The article "On the Use (and Abuse) of Stock Option Grants" has some interesting information about how backdating practices led to the interest explosion back in 2006. SEC was and is working hard to fix the problem. The companies must expense stock options at the "fair" value and there are additional disclosures required. It doesn't fix the problem altogether though. There are still many loopholes

Abstract: On October 11, 2011, the Public Company Accounting Oversight Board (PCAOB) proposed a new rule. The rule is meant to name the engagement partner and other key participants who play a role in preparing audit reports. PCAOB believes that new rule would help to get more information and would be useful to investors, creditors and other financial statements users. After six years of debate over the intended and unintended consequences the PCAOB concluded and issued the rule on December 15, 2015.The objective of my research was to reflect my expectations for the consequences, both intended and unintended of the Public Company Accounting Oversight Board of the new rule. The PCAOB’s final article “Improving the transparency of audits: Rules to require disclosure of certain audit participates on a new PCAOB form and related amendments to auditing standards” release No. 2015-008 issued on December 15, 2015 was very crucial for my research because it gives first hand perspective of the new rule.

Recent studies have investigated the impact of the 2007-2009 financial crises on banks’ capital. Berger and Bouwman (2011) emphasised the importance of capital during financial crisis. Their empirical study concludes that banks with solid capital base have some benefits during the crisis than those that are poorly capitalised. Well capitalised banks are more able to withstand the shocks due to liquidity squeeze, and therefore had higher chances of surviving the crisis period. Other benefits accrued to well capitalised banks include increase in their market share and profitability, as customers withdrew their funds from less capitalised to a well-capitalised banks. This conclusion was also reinforced by a recent empirical study conducted Olivier de Bandt et al (2014) on a sample of large French banks over a period of 1993 – 2012. Similarly, Gambacorta and Marques-Ibanez (2011) demonstrate the existence of structural changes during the period of financial crisis. They conclude that banks with weaker core capital positions, greater dependence on market funding and on non-interest sources of income restricted the loan supply more strongly during the crisis period. Using a multi-country panel of banks, Demirgüç-Kunt, Detragiache and Merrouche (2010) find among others results, that during

There were twenty-four pictures available on the website. The Incentive Offer was available and it had the “New” logo stating that the Fannie Mae-approved repair contractors had performed certain repairs. Many of the pictures were clear, however, some of them showed only partial views of the rooms and a few of them appeared to be blurry.

There are many rules and guidelines that concern how companies and licensed representatives conduct daily business/financial transactions. However, it has been noted that XYZ’s stop gap measures are not in direct correlation with the Securities Exchange Commission’s guidelines. Therefore, research is needed in order to understand what XYZ is lacking in terms of compliance standards. The proposal consists of researching what is needed to ensure that all licensed representatives are complying with the reporting requirements of the SEC. It is understood that it is mandatory for XYZ to maintain all licensed representatives personal financial documentation to show trading compliance. Right now, XYZ employees are required to self-disclose banking information. However, it has been discovered that many licensed representatives are not disclosing all pertinent banking information. Because of the non-disclosure issues, the SEC has discovered unfair trading practices that involve XYZ employees. Examples of what will be involved in the research project is to delve into the unfair/unethical practices that involve allegations of insider trading, tied selling and principal-agent problems.

Since the late 1980’s more and more people have been given the opportunity to purchase stock options. As of 2001, ten million employees have chosen to purchase stock options. Another survey established that 97 of the top 100 e-commerce companies gave the choice of options this year. For these reasons, it is important to understand what stock options are, the different types of options, and their advantages and disadvantages.

In any business operations, full financial disclosure refers to the provision of the necessary information about a company for better decision making by the people accustomed. It is the financial revelation of a given company. There are some financial disclosures in any business that ensure proper understanding of financial statements to the financial readers, or potential auditors. Examples are the annual financial reports and the financial declarations of the company. The annual financial reports of the enterprise are very useful since they discloses the revenues recognized in the business, and the accountability of the inventories plus the income taxes accounted for during that period of operation. Second, is the disclosure of this financial statements which gives the actual revelation of the company 's stock options, liabilities and the effects of foreign currencies?! This disclosure includes the company 's balance sheet of the year, income statements and also the cash statements flows of that year. This information gives a proper understanding of the financial status users about the effects of inflation and price change on property and inventories (Berger, 2011).

Hence, this model measure the effectiveness fluctuation of input prices such as fund, capital and labor’s prices that change equilibrium revenues for each firm. As we can see from economic literary this current model include some other influential assumptions as (i) this test will apply just for profit maximizing firms in both individual and industry level (ii) industry must be in equilibrium condition (iii) the cost and demand should be in formal structure and another crucial assumption for P-R test is (iv) banks are in single-product form that means that in bank modeling process we use a intermediation paradigm (De Bandt and Davis,

Secondly, this report will provide an example – the Lehman Brothers which was involved in CDOs and give that how CDOs created problems in it and finally let Lehman Brothers bankrupt. Last, this paper will provide four recommendations for making the CDOs as effective liquidity risk management mechanism for banks or financial institutions. All these four recommendations need government, banks and financial institutions corporate. Finally, this report will give a conclusion that emphasizes the analysis and evaluation of CDOs in this paper.

List of abbreviations List of tables Acknowledgements Abstract 1. 2. 3. 4. 5. 6. 7. 8. Introduction Problem statement Objectives and hypothesis of the study Literature review Structure and performance of the financial sector in