Expensing performance-vested executive stock options: is there underreporting under IFRS 2?
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This study generates new empirical evidence on the issue of underreporting of executive stock options. It is the first under the mandatory expense setting of International Financial Reporting Standard (IFRS) 2 and to include performance-vested options. I use a hand-collected data sample from Germany, where performance vesting has a longer history than in other countries. I find that many firms fail to disclose all required parameters and underreport the values of the options. Besides inexperience with preparing IFRS reports, incentives to hide higher pay are associated with this reporting behavior. Additionally, firms with more complex options underreport more. Since the German setting shares many institutional similarities with other (European) IFRS countries, the results are of interest to shareholders, standard setters, and enforcement authorities in such countries.
KeywordsExecutive stock options Option expensing Underreporting IFRS 2
JEL ClassificationM12 M48 G34
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