Does Accounting Regulation Enhance Corporate Governance? Evidence from the Disclosure of Share-Based Remuneration
Journal of Management and Governance, Forthcoming
17 Pages Posted: 30 Jul 2010 Last revised: 31 Oct 2010
Date Written: April 6, 2009
Accounting for stock options and share-based remuneration is a controversial issue. The purpose of this study is to explore the impact of the mandatory adoption of IFRS 2 on accounting for share-based remuneration by Italian listed companies. The requirements under this standard could have relevant implications for corporate governance as IFRS 2 is expected to reduce the information asymmetry that may exist between corporate insiders and outsiders regarding such remuneration. Empirical evidence confirms that overall disclosure in annual reports concerning the costs of remuneration plans has increased following the adoption of IFRS 2, although some cases of lack of disclosure have also been found. We find that this change in accounting regulation has contributed towards revealing the 'true' cost of share-based remuneration to minority shareholders and other investors, together with some evidence of creative accounting surrounding the substance over form principle.
Keywords: accounting regulation, corporate governance, disclosure, IFRS 2, Italy, share-based remuneration, stock options
JEL Classification: G34, M41
Suggested Citation: Suggested Citation