Accounting for Employee Stock Options

Posted: 7 Mar 2003

See all articles by Wayne R. Guay

Wayne R. Guay

University of Pennsylvania - Accounting Department

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Richard G. Sloan

University of Southern California - Leventhal School of Accounting

Date Written: January 2003

Abstract

Accounting for employee stock options (ESOs) is controversial, with many arguing that it has substantial economic consequences. Such arguments rely on the assumption that one or more interested parties fixate on accounting numbers and fail to understand the real costs and benefits of ESOs. We review the various accounting issues and economic consequence arguments created by ESOs. We conclude that the accounting should facilitate a clear and consistent understanding of the costs of doing business, and that expensing ESOs best achieves this objective.

Keywords: Accounting for Employee Stock Options, Stock Option Expense, Diluted Earnings Per Share

JEL Classification: G30, J33, M41

Suggested Citation

Guay, Wayne R. and Kothari, S.P. and Sloan, Richard G., Accounting for Employee Stock Options (January 2003). American Economic Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=385224

Wayne R. Guay (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
1329 Steinberg-Dietrich Hall
Philadelphia, PA 19104-6365
United States
215-898-7775 (Phone)
215-573-2054 (Fax)

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

Richard G. Sloan

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

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