Determinants of Share-Based Compensation. Evidence from companies listed at the Stockholm Stock Exchange

Sammanfattning: Background and problem: The role of Share-based compensation (SBC) has been discussed frequently. While there are many studies that consider positive role of SBC for alignment of agent and principal interests, many other authors believe in an opportunity for earnings management and misuse financial statements. However, the role of SBC may also be related to the determinants of the application of these plans. Studying the determinants of SBC provides relevant information to, mainly, owners and management about the circumstances which use of SBC, brings efficiency to the firm. This, in fact, is often missing in the recent debates. Purpose: The present study investigates how firm’s characteristics are related with the use of SBC for firms listed at Stockholm Stock Exchange. By observing the relations and consequently finding out the determinants of SBC, we are able to assess the role of SBC. Delimitations: The delimitations of this thesis concern the application of SBC for listed companies at Stockholm Stock Exchange for the years 2007 to 2008 which apply IFRS 2. Furthermore, it is out of the scope of this thesis to investigate the relation of firm´ characteristics other than those studied in this thesis and the effect of SBC on the performance of these firms. Method: Quantitative approach was conducted with statistical correlation and regression analysis in order to understand the variables relation and finding out how firms´ characteristics are related to SBC use. Conclusion: The statistical results indicate that the use of SBC differs between companies with different particularities. From the analyzed characteristics, intangible assets ratio, company size, and ownership structure are discovered to be the determinants of SBC as they present significant relation with SBC use. The reasoning for such correlation is grounded on the agency theory and pay-performance relation, where SBC as an efficient incentive method is strongly linked to entities with different characteristics. Suggestions for further research: As a longitudinal research, this study provides the opportunity to apply the same kind of study in different periods of time. It would be interesting to investigate the determinants of SBC for a longer span period of time, since not only it is possible to analyze the historical development of firms’ characteristics, but also the effect of financial crisis can be observed. Another suggestion is to observe the same research question separately for selective and broad-based scheme in order to have more comprehensive conclusion regarding the objective of SBC.