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> They are losing money via dilution for the shareholders at the time that they issued the stock. I'm not sure what you mean by "losing money via dilution". Co

by rsj_hn 5y ago

> They are losing money via dilution for the shareholders at the time that they issued the stock. I'm not sure what you mean by "losing money via dilution". Companies don't lose money via the market repricing their shares. Shareholders may lose money. But in aggregate, there are also more shareholders, so one group of shareholders loses some money and another group of shareholders gains some money. In aggregate, shareholders don't lose money.

trepanne 5y ago
> In aggregate, shareholders don't lose money. Happily, the FASB isn't fooled by this particular sleight-of-hand. Not anymore, at any rate; they quit letting themselves get bamboozled by Silicon Valley flim-flam accounting for options more than 15 year ago. If the shareholders have constant ongoing dilution due to continual share issuance, they have run just to stay in place. This is pretty straightforward, and what the GAAP are communicating to FS readers. You have a comp expense, of course (you gave something valuable to an employee instead of selling it for cash), and you also have the dilution, without even getting the cash in return. It's the only appropriate way to account for it. It is a very expensive form of compensation.
- rsj_hn 5y ago
  It is not flim-flam. The shareholders elect a board, and the board has to approve stock based compensation. The shareholders price shares based on this expected dilution so no one is being fooled and there is no sleight of hand. All of this is very public.
  - trepanne 5y ago
    The flim-flam comes when management argues that they don't need to book a compensation expense. Happily, though, this flaw in the GAAP has long since been cured.
TheCoelacanth 5y ago
No, their shareholders lose money. People who later become their shareholders gain money. As with any other way of spending money, that is often in their shareholders' best interest, but arguing that it is not an expense is nonsense.

by rsj_hn 5y ago

trepanne 5y ago

> In aggregate, shareholders don't lose money. Happily, the FASB isn't fooled by this particular sleight-of-hand. Not anymore, at any rate; they quit letting themselves get bamboozled by Silicon Valley flim-flam accounting for options more than 15 year ago. If the shareholders have constant ongoing dilution due to continual share issuance, they have run just to stay in place. This is pretty straightforward, and what the GAAP are communicating to FS readers. You have a comp expense, of course (you gave something valuable to an employee instead of selling it for cash), and you also have the dilution, without even getting the cash in return. It's the only appropriate way to account for it. It is a very expensive form of compensation.

rsj_hn 5y ago
It is not flim-flam. The shareholders elect a board, and the board has to approve stock based compensation. The shareholders price shares based on this expected dilution so no one is being fooled and there is no sleight of hand. All of this is very public.
- trepanne 5y ago
  The flim-flam comes when management argues that they don't need to book a compensation expense. Happily, though, this flaw in the GAAP has long since been cured.

TheCoelacanth 5y ago

No, their shareholders lose money. People who later become their shareholders gain money. As with any other way of spending money, that is often in their shareholders' best interest, but arguing that it is not an expense is nonsense.