Some traders trade on income news, with little time for analysis. They would be more useful if the info they traded on was good. When I talk about equity traders I assume that the equities trade on a public market. I agree that sharing the expense by having the company do it has advantages if most equity owners would do the analysis. The equity owners of a private firm have almost no opportunity to trade out of their shares anyway and so won't get much out of options expense info until the company goes public.
All in all, I think I favor expensing if it carries over to income taxes. I'm going to start reading up on Subchapter S and limited partnership structures for start-ups.
I agree with what you say, but I have reservations about applying it to private companies. My thought is also that investors in such companies would be in an excellent position to make their own guesses or hire a consultant, whereas individual investors or those trading rapidly in shares would place a much higher value on options expense information. It occurs to me that sub S and limited partnership structures that would pass through the losses for tax purposes might become favored vehicles for start-up financing if options expensing for tax purposes comes to be.
Publicly traded companies and private start-ups have completely different needs with respect to options accounting. For publicly traded companies, expensing options is desirable for providing better information to smaller individual investors. For private start-ups, accurate expensing is not feasible and not necessary because individual investors should not, usually cannot, and mostly do not invest in such companies.
For public companies the leading issue is to make the financial statements as helpful as possible for outside investors with limited resources to make a quick decision about a stock. If you have the time to read all the footnotes and run your own BS model to value the options, you don't need to rely much on the income statement treatment of options. Smaller individual investors need to rely on income statements to a greater extent. Failure to expense options means such investors might miss the fact that a company's apparently high performance was purchesed by high compensation of executives or that the company was being looted by executives through excessive stock option grants. For publicly traded companies there is much more information about the volatility of the underlying common stock (a key variable in any options pricing model, such as BS.
Privately held companies have insufficient common stock pricing events for such a volatility estimate. In addition, the outsiders investors are typically sophisticated angel investors and/or venture capitalists, mezzanine investors, or friends and family investing based on trust of the insiders. This is a vastly different scenario. At some point the investors might want the company to switch to expensing options
Does anyone know whether DSL has the same wonderful local exchange battery backup as POTS ? My understanding is that every local exchange has battery backup for something like 24-48 hours. Because DSL uses those lines they MIGHT be more reliable than my cable ISP , which in my little city (Mount Vernon, NY) is very unreliable (Time Warner Cable).
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Some traders trade on income news, with little time for analysis. They would be more useful if the info they traded on was good. When I talk about equity traders I assume that the equities trade on a public market. I agree that sharing the expense by having the company do it has advantages if most equity owners would do the analysis. The equity owners of a private firm have almost no opportunity to trade out of their shares anyway and so won't get much out of options expense info until the company goes public. All in all, I think I favor expensing if it carries over to income taxes. I'm going to start reading up on Subchapter S and limited partnership structures for start-ups.
I agree with what you say, but I have reservations about applying it to private companies. My thought is also that investors in such companies would be in an excellent position to make their own guesses or hire a consultant, whereas individual investors or those trading rapidly in shares would place a much higher value on options expense information. It occurs to me that sub S and limited partnership structures that would pass through the losses for tax purposes might become favored vehicles for start-up financing if options expensing for tax purposes comes to be.
Publicly traded companies and private start-ups have completely different needs with respect to options accounting. For publicly traded companies, expensing options is desirable for providing better information to smaller individual investors. For private start-ups, accurate expensing is not feasible and not necessary because individual investors should not, usually cannot, and mostly do not invest in such companies. For public companies the leading issue is to make the financial statements as helpful as possible for outside investors with limited resources to make a quick decision about a stock. If you have the time to read all the footnotes and run your own BS model to value the options, you don't need to rely much on the income statement treatment of options. Smaller individual investors need to rely on income statements to a greater extent. Failure to expense options means such investors might miss the fact that a company's apparently high performance was purchesed by high compensation of executives or that the company was being looted by executives through excessive stock option grants. For publicly traded companies there is much more information about the volatility of the underlying common stock (a key variable in any options pricing model, such as BS. Privately held companies have insufficient common stock pricing events for such a volatility estimate. In addition, the outsiders investors are typically sophisticated angel investors and/or venture capitalists, mezzanine investors, or friends and family investing based on trust of the insiders. This is a vastly different scenario. At some point the investors might want the company to switch to expensing options
Does anyone know whether DSL has the same wonderful local exchange battery backup as POTS ? My understanding is that every local exchange has battery backup for something like 24-48 hours. Because DSL uses those lines they MIGHT be more reliable than my cable ISP , which in my little city (Mount Vernon, NY) is very unreliable (Time Warner Cable).