QUESTION:

Expensing of employee stock options (ESOs) is now a requirement in financial reporting both under U.S. GAAP and IFRS. However, management, especially in the United States, successfully resisted expensing for many years before the expensing rules were finally adopted. Even now, accounting for ESOs remain a controversial topic.

Required

a) Discuss the effect of this asymmetric feature of ESOs on managers incentive to undertake risky projects. In other words, do these features lead to managers undertaking high-risk projects or low-risk projects?

DETAIL ANSWER. SHORT ANWERS WILL BE REJECTED