Repurchasing stock won’t fool the market

When managers realize that their corporate earnings per share are in jeopardy of falling short of analysts’ quarterly forecasts, they usually look for a way to avoid that fate. While there has been plenty of research that looks at how companies beat analysts forecast by manipulating their earnings, the effects of stock repurchases has remained unexamined. A new study by a business professor at Washington University in St. Louis, finds that under the right circumstances, repurchasing stock in an attempt to increase earnings per share does not completely fool the market, although it is an effective way to avoid being throttled when earnings per share falls short of market expectations.

Choosing an incentive for good work so everyone gains: stocks or options?

Stock options or pure stock — what’s the trade-off?In recent years, the practice of motivating CEOs and managers with stock options rather than pure stock has been linked to corruption and fraud. But companies shouldn’t fear the option, according to two professors in the Olin School of Business at Washington University in St. Louis. Moving away from stock options as a way to reward good work may be a bad business move. The professors argue that in most cases stock options provide better incentives to motivate employees and they’re less expensive for the company to issue. At the same time, the researchers found that if a company is just starting out or facing possible bankruptcy, then stocks are your best bet.

New FASB rule on expensing employee stock options will reduce reported income of firms

The recently proposed rule by the Financial Accounting Standards Board (FASB) that requires companies to treat employee stock-option compensation as an expense on corporate income statements will reduce the reported income of firms, according to Todd Milbourn, a professor of finance at the Olin School of Business at Washington University in St. Louis. The new rule, if finalized after a 90-day comment period, will go into effect next year.