The article that has been chosen for the purpose of this paper is the article titled ‘The Hidden Cost of Stock Options’ by Laura Cohn, from the Business Week. This article basically analyses the stock options available in the market and how they are being abused. The article reports that from a study of with 1,300 companies as respondents it was discovered that in 1999 about 13 percent of the employees of the responding companies were liable for stock options.
This meant that the companies were exercising the use of stock options without actually knowing the effect that it has on the earnings per share of the entire stock. In actuality when the employees of a company exercise their stock options the value of the total stock remains the same while the volume or the number of stocks increases. This means that the company has to do this by buying the shares form the market or by issuing new stock into the market. The consequent result of these actions on the part of the company makes the stock of the company more diluted as the value of the shares and the profits are spread over a larger volume of the shares, making the earnings per share for the shareholders to decrease with the increasing spread. This has a detrimental effect on the stock price in the market as well making the value or the price of the share in the market to be decreased in the long term.
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