The Relationship Between Executive Stock Options Compensation and Firm Value

Moderating Effects of Agency Problems and Monitoring Systems on the Relationship between Executive Stock Option and Audit Fees: Evidence from Korea

Sustainability ◽

10.3390/su10114041 ◽

2018 ◽

Vol 10 (11) ◽

pp. 4041

Author(s):

Sang Cheol Lee ◽

Jaewan Park ◽

Mooweon Rhee ◽

Yunkeun Lee

Keyword(s):

Emerging Markets ◽

Firm Value ◽

Stock Options ◽

Agency Problems ◽

Audit Fees ◽

Stock Option ◽

Monitoring Systems ◽

Executive Stock Options ◽

Moderating Effects ◽

The Relationship

Since executive stock options may give rent-seeking incentives to CEOs, CEOs with stock options are likely to misallocate corporate resources to seek personal gains, which in turn may lead to a decrease in firm value. High-quality audit services can reduce the negative impacts of executive stock options on firm value and help firms to ensure sustainable growth. However, while most of the existing accounting literature related to executive stock options (ESO) is mainly focused on earnings management, there are relatively few studies that investigate the relation between ESO and audit fees. At the same time, while previous studies on ESO have been conducted in advanced countries, few studies have identified the relationship between ESO and audit fees in emerging markets. Therefore, it is necessary to examine the effect of ESO under circumstances different from those of developed countries. To fill this gap, we investigated the association between executive stock options and audit fees and examine the moderating effects of agency problems and monitoring systems on the relationship. Using 462 observations from 110 nonfinancial Korean listed companies, for the period of 2000 to 2005, we found that executive stock options are positively related to audit fees. In addition, we found that the effects of executive stock options on audit fees are even higher in firms with high agency problems, effective internal monitoring systems, and major accounting firms. This study can help regulatory agencies to validate audit fee regulations, such as the International Standard on Auditing, that consider ESO a significant risk factor. In addition, these results can help external auditors to set up the specific guidelines for pricing audit fees. Furthermore, the results of this study will contribute to the construction of more desirable corporate governance structure in Korean companies, which in turn would not only enhance firm value but also strengthen the sustainability of companies belonging to the emerging markets.

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Kinerja Perusahaan sebagai Pemediasi Pengaruh Penerapan Employee Stock Option Plan (ESOP) pada Nilai Perusahaan

E-Jurnal Akuntansi ◽

10.24843/eja.2020.v30.i04.p16 ◽

2020 ◽

Vol 30 (4) ◽

pp. 993

Author(s):

Ni Ayu Wisma Dewi ◽

Ida Bagus Putra Astika

Keyword(s):

Firm Performance ◽

Firm Value ◽

Stock Options ◽

Limited Liability ◽

Stock Option ◽

Employee Stock Option ◽

Employee Stock Ownership ◽

Cooperative Relationship ◽

The Relationship ◽

Positive Effect

Limited liability company (Ltd) based on a contract cooperative relationship which is the basis of agency theory with the risk of conflict. The solution to minimize is the employee stock ownership program with the Employee Stock Option Plan (ESOP) strategy. The purpose of this study is to obtain empirical evidence of the relationship of stock options granted’s number to the firm value through firm performance. This research was conducted at companies listed in the BEI and conducted ESOP grants in 2014-2018. Samples obtained using purposive sampling were 48 observations. Data analysis technique used is path analysis. The results showed that the number of stock options granted had a positive effect on firm performance, firm performance had a positive effect on firm value, the number of shares options granted had a positive effect on firm value, and firm performance mediated the relationship between the number of shares options granted and firm value. Keywords: Employee Stock Option Plan; Firm Performance; Firm Value.

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