Determinants and Valuation Implications of Compulsory Stock Option Disclosures in a Weak Regulatory Setting - The Case of France

39 Pages Posted: 6 Jan 2016

See all articles by Lisa Goh

Lisa Goh

Hang Seng University of Hong Kong - Department of Accountancy

Philip Joos

Tilburg University

Kazbi Soonawalla

University of Oxford - Said Business School

Date Written: February 2016

Abstract

Using a sample of listed French firms in 2005, the year of mandatory IFRS adoption in the European Union (EU), we investigate the determinants of disclosure compliance of stock option expenses under IFRS 2, Share‐based Payment. Stock options are a popular means of executive compensation in France relative to other EU countries. Prior to 2005, French accounting standards and corporate governance regulations did not require recognition of option expense amounts and required minimal supplementary disclosures. There was also a perception that enforcement was imperfect, in particular with respect to IFRS 2. Given this setting, we explore what factors influence the willingness of firms to follow compulsory IFRS requirements in a weak regulatory setting. We find that overall compliance with IFRS 2 disclosure requirements increases with U.S. and U.K. institutional ownership, U.S. cross‐listing, provision of English language statements, and decreases with CEO and family ownership of the firm. We also investigate how stock market prices are affected by the recognition and disclosure of stock option expenses according to IFRS 2 in this regulatory setting and find that investors value option expenses positively, particularly when accompanied by high‐disclosure compliance. Our findings have implications for other jurisdictions in the process of adopting or converging to IFRS.

Suggested Citation

Goh, Lisa and Joos, Philip and Soonawalla, Kazbi, Determinants and Valuation Implications of Compulsory Stock Option Disclosures in a Weak Regulatory Setting - The Case of France (February 2016). Journal of International Financial Management & Accounting, Vol. 27, Issue 1, pp. 26-64, 2016, Available at SSRN: https://ssrn.com/abstract=2711509 or http://dx.doi.org/10.1111/jifm.12032

Lisa Goh (Contact Author)

Hang Seng University of Hong Kong - Department of Accountancy ( email )

Hang Shin Link
Siu Lek Yuen
Shatin, Hong Kong
China

Philip Joos

Tilburg University ( email )

School of Economics and Management
Warandelaan 2
Tilburg, 5000 LE
Netherlands
31 13 4668716 (Phone)
31 13 4668001 (Fax)

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/philjoos/

Kazbi Soonawalla

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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