02_OverheadsForChen1 - Objectivesfortoday Discussion -...

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ACCY 302 (Chen) Fall 2009, Class 02 1 Objectives for today Discussion - Options Agency theory the players the conflict and resulting "agency problems" easing agency problems potential solutions analyze benefits & costs ("agency costs") of solutions further examine benefits & costs of incentive contracts as a solution link between agency problems, agency costs, & accounting
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ACCY 302 (Chen) Fall 2009, Class 02 2 Discussion Options: The good, the bad, and the ugly?
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ACCY 302 (Chen) Fall 2009, Class 02 3 Who bears the cost of bad decisions? Assume a company's earnings per share is $1.50 A manager holds 500,000 options, so her share of net income (before leasing a condo) is: 500,000 x $1.50 = $750,000 If the manager leases the $3,000,000 condo, the company's earnings per share will go down to $1.49 And the manager's new share of net income is: 500,000 x $1.49 = $745,000
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ACCY 302 (Chen) Fall 2009, Class 02 4 Option Backdating ???
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ACCY 302 (Chen) Fall 2009, Class 02 5 WSJ: Jan 12, 2007 Regulators are looking into a falsely dated grant of 7.5 million options to Steve Jobs. Documents say Apple's board approved option grants with an exercise price of $18.30 on Oct. 19, 2001 . Truth is that the final terms of the grant were set on December 18, 2001 . Apple shares were trading at $21.01 on that date . In fact, such a special board meeting on Oct. 19 did NOT occur. Apple took a $20 million charge for the grant, reflecting the difference between the grant price and the actual stock price on December 18. 23% of options granted to top executives between 1996 and 2002 were backdated or otherwise manipulated.
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ACCY 302 (Chen) Fall 2009, Class 02 6 WSJ: Aug 17, 2009 The majority of companies that improperly backdated stock options never were caught by regulators or confessed to the practice, according to a new academic study. Researchers at the University of Houston's C.T. Bauer College of Business used a sophisticated statistical test to sift through more than 4,000 publicly traded companies for those with patterns of granting options at abnormally favorable times, often at low points for their share prices. The study identified 141 companies with such advantageous
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This note was uploaded on 11/08/2011 for the course ACCY 302 taught by Professor Staff during the Fall '08 term at University of Illinois, Urbana Champaign.

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02_OverheadsForChen1 - Objectivesfortoday Discussion -...

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