How well does net income measure firm performance? A discussion of two studies

Article Abstract:

The purpose of Statement of Financial Accounting Standards (SFAS no. 130) is to eliminate clean surplus violations by requiring companies to furnish the government with a report on corporate comprehensive income in addition to the standard disclosure of net income. Cash flow may not be affected by this form of disclosure which may not also affect the value of investment securities. Real estate investment trusts may not be accurately assessed by net income since generally accepted accounting principles require real property depreciation, causing reported net income to be low.

Reporting & Disclosure, Real estate investment trusts, Real Estate Invest Trusts, Income Accounting, Economic aspects, Tax policy, Financial statements, Cash flow

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Discussion of "employee stock options, EPS dilution, and stock repurchases"

Article Abstract:

Bens, Nagar, Skinner, and Wong concluded that stock repurchase decision were related to the impact of stock options on the ability of firms to meet historical employee stock options (EPS) growth targets. The results were highly sensitive to the choice of EPS growth target, firms with high P/E ratio produce results that are completely inconsistent with the research hypothesis, and alternative explanations that were unrelated to earnings management were not considered.

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Employee stock options, EPS dilution and stock repurchases

Article Abstract:

An investigation is conducted to ascertain whether corporate executives' stock repurchase decisions are affected by their incentives to manage diluted per share (EPS). It is observed that the executiveEs increase the level of their firms' stock repurchases when the dilute effect of outstanding employee stock options (ESOs) on diluted EPS increases and earnings are below the level required to achieve the desired rate of EPS growth.

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