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Allocations of Sunk Capacity Costs and Joint Costs in a Linear Principal-Agent Model.

Thomas Hemmer

The Accounting Review 1996 71(3), 419-432

Examines the allocation of sunk capacity costs and joint costs. Trade-off between risk-sharing and incentives; Optimal capacity cost allocation as a function of budgeted volume; Previous research on capacity cost allocation; Insights from principal-agent theory.

The influence of risk diversification on the early exercise of employee stock options by executive officers

Thomas Hemmer; Steve Matsunaga; Terry Shevlin

Journal of Accounting and Economics 1996 21(1), 45-68

This paper examines the exercise of employee stock options (ESOs) by executive officers. We document a positive relation between the variance of ESO returns and the remaining life of the option at exercise, and show that the strength of the relation is reduced by the extent the firm hedges the returns on the ESO. We thus provide empirical evidence of a link between an ESO's expected term and its investment risk to the executive, and document that some firms provide a hedge against option risk.

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Allocations of Sunk Capacity Costs and Joint Costs in a Linear Principal-Agent Model.

The influence of risk diversification on the early exercise of employee stock options by executive officers