Determinants of share-based compensation (SBC) and the effect of SBC on firm performance: A comprehensive two-step analysis of companies in the Philippine stock exchange

• Main Authors: Lam, Andrew W., Ysmael, Juan Leandro S., Yu, Ron Lester C.
• Format: text
• Language: English
• Published: Animo Repository 2011
• Subjects: Accounting > Standards; Employee stock options > Accounting > Standards; Compensation management > Philippines; Accounting
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/11351
• Institution: De La Salle University

Share-based compensation (SBC) is a growing trend worldwide for firms that seek to improve efficiency and employee morale. There have been limited studies on SBC in literature, particularly in the Philippines, where its effect on the firm's performance is uncertain and no consensus could be made. As companies become increasingly competitive, there is an opportunity to determine which firm - specific financial ratios influence the probability of a Philippine firm to implement SBC schemes, and whether these SBC schemes positively or negatively affect a Philippine firm's future performance. Findings may guide firm owners regarding their decision to further invest in SBC plans, or to begin using these plans. Using a dataset of 203 firms in the Philippines from 2005-2010, taken from the Philippine Stock Exchange, we employ binary logistics regression and panel data estimation to determine the factors that affect SBC use as well as the effect of SBC use on profitability. In general, we find that lagged ROE, market capitalization, and intangible assets ratio significantly determine the probability of SBC utilization, and firms that engage in SBC schemes post higher earnings per share figures than the average firm in the Philippines.