Earnings management and the performance of seasoned equity offerings

Article Abstract:

The decline in earnings and stock price performance experienced by firms after an offering may be explained by the inherent nature of discretionary accounting accruals. Results gathered from 230 seasoned offerings conducted between 1987 and 1990 showed that accruals which exhibit a one-standard deviation increase tend to manifest two to three cent per dollar decrease in earnings. These changes have also been found to be influenced by sales growth, firm size, book-to-market ratio and capital expenditure growth.

Accrual Accounting, Analysis, Evaluation, Accrual basis accounting, Earnings per share

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The exercise and valuation of executive stock options

Article Abstract:

An assessment of executive stock options was undertaken through the use of option exercise data coming from 40 companies. The option exercise data revealed that a simple extension of the ordinary American option model, which is used in presenting random, exogenous exercise and forfeiture, can be effectively utilized to forecast actual exercise times and payoffs. Such model extension also proved to be more efficient than the preference-based model in valuation of actual executive options.

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Information-time option pricing: theory and empirical evidence

Article Abstract:

An option pricing formula with stochastic volatility was developed to address the complexity of the option pricing problem. The formula, which was based on the randomized operational time concept of the probability theory, takes into consideration information arrival intensity and information-time asset volatility. Tests showed that the option price of the formula rises whenever the information arrival rate strengthens.

Models, Options (Finance), Information theory, Stochastic processes

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