Managerial Economics & Organizational Architecture 6th Edition by James Brickley , Clifford Smith ,Jerold Zimmerman

Exercise 18

Prior to 2004, American accounting rules did not require firms to expense stock options on their accounting statements. Thus, firms were able to grant executive stock options without impacting "bottom-line performance." Correspondingly, some people argued that the primary reason firms paid executives in the form of stock options is that they were free. Do you agree (1) that stock options were free and (2) that this is the primary reason for paying executives in options Explain