The Impact of IFRS 2 "Share-Based Payment" on Malaysian Companies

Ruhaya Atan (), Nur Syuhada Jasni () and Yousef Shahwan ()
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Ruhaya Atan: Universiti Teknologi MARA, Malaysia
Nur Syuhada Jasni: Universiti Teknologi MARA, Malaysia
Yousef Shahwan: Department of Accounting, College of Business and Economics, United Arab Emirates University, P.O. Box 15551, Al-Ain, United Arab Emirates

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2010, vol. 13, issue 03, 449-468

Abstract: In the wake of corporate scandals and excessive stock options compensation, International Accounting Standard Board (IASB) has introduced a new accounting standard, IIFRS 2 Share-based Payments. The scope of the standard extends beyond payments to employees, but for the purpose of this study, the focus is only on 'employee stock options'. IIFRS 2 requires a fair value of stock options records calculated on grant date, and recognized as compensation expenses over vesting periods. Prior to the introduction of IIFRS 2, stock options were not recognized and were only disclosed in the notes to the accounts. In Malaysia, the standard is mandatory for all companies listed on or after January 1, 2006. This study assumes the requirement existed in 2003. This study examines the impact of stock options expenses from 2003 to 2005, on the top 100 Malaysian companies. The three year observations show at least 24% of the sample exceeds the 5% materiality threshold on diluted EPS. The sectors that are impacted the most are the Trade/Service and Finance sectors. From the multiple-regression test, this study finds that fair value of stock options have a negative relationship with dividend yields (input of the Black-Scholes Merton (BSM) Model). Most companies in the sample are found to pay dividends and grant stock options at the same time. Therefore, this study suggests that companies need to restructure their compensation plan thus balancing the stock options granted and dividends paid in the future.

Keywords: Share-based payment; IFRS 2; FRS 2; Malaysian companies; stock options; stock options valuation (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2010
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DOI: 10.1142/S0219091510002025

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