Abstract
The aim of this paper is to assess the quality of share-based payments' disclosure in compliance with IFRS 2 by companies listed on the Prague Stock Exchange. The study shows how companies in the Czech market utilizing share-based payments meet the requirements given by IFRS 2 framework and in order to support the arguments, it compares the results with randomly selected companies from the German DAX index, which represents a well-developed market. The focus is on three key principles of disclosure, as defined by the IFRS 2. As we will demonstrate, Czech corporations do meet the regulatory minimum requirements, but they fail to utilize some of the advanced valuation methods and their reports are generally rather brief compared to their German counterparts.
Highlights
Options and stocks granted to executives and employees by market-leading companies have been wildly debated by both theoreticians and professionals over the past several decades
The research question stated upfront asked whether the quality of disclosure in compliance with IFRS 2 by companies from a developed market is superior to the information reported by companies listed on the Prague Stock Exchange
We need to make clear that the framework laid down by the IFRS 2 standard does not represent the ideal state of disclosure, but more of a minimum requirement for disclosing in order to ensure transparency and reliability of financial statements
Summary
Options and stocks granted to executives and employees by market-leading companies have been wildly debated by both theoreticians and professionals over the past several decades. Some believe that this form of compensation commonly referred to as share-based payments is an effective tool of employee motivation and remuneration, incentivizing the staff to take actions resulting in shareholders’ value maximization. Agency theory indicates that there is a risk of managerial mischief when the interests of owners (principals) and managers (agents) differ. It suggests an alignment of their interests through equity ownership. Managers with fixed cash salaries restricted solely by ineffective external control mechanisms could incline to empire-building and Červený, M.: Fulfillment of IFRS 2 Disclosure Requirements by Companies Listed on the Prague Stock Exchange
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