AN EXAMINATION OF ACCOUNTING FOR STOCK-BASED COMPENSATION PLANS

Abstract

In this study, researchers statistically examine the stock-based compensation program records of a sample of publicly traded companies. Researchers assess the potential effects of FASB and IFRS 2 on reported expenses and financial metrics. Important considerations include the reported compensation expenditures, the total fair value of the stock options issued, and variances in profits per share (EPS). Using regression analysis, the researchers look at how different methods of determining fair value relate to the reported diversity in compensation spending. Companies that used option pricing methods, such as Black-Scholes, to determine their value reported much greater expenditures, according to our study. There is a statistically significant inverse relationship between earnings per share (EPS) and stock-based compensation expenditures, suggesting that rising compensation expenses might impact a company's apparent profitability. The degree of openness about stock-based compensation is also correlated with investor reactions as measured by stock price volatility in our research. Research shows that when investors have less uncertainty due to better disclosure rules, stock prices stabilise. When it comes to accounting for stock-based compensation, the results of this research show how important it is to have robust valuation methodologies and clear reporting criteria. Gains in understanding could be seen in accounting standards and the trust that stakeholders have in financial reporting.