The predictive ability of share-based compensation expense

Alaa Alhaj-Ismail; Sami Adwan

doi:10.1080/00014788.2024.2346836

The predictive ability of share-based compensation expense

Alaa Alhaj-Ismail, Sami Adwan

University of Sussex

Research output: Contribution to journal › Article › peer-review

1 Citation (Scopus)

49 Downloads (Pure)

Abstract

This paper examines the ability of share-based compensation expense (SBCE) to predict future firm performance relative to other employee compensation expenses. It also examines whether cash settled-based compensation expense has greater predictive ability for future performance than equity settled expense. Using a sample of 443 firms listed in the UK between 2005 and 2018, we find that the predictive ability of SBCE is statistically significantly higher than that of other employee compensation expenses. Furthermore, the results show that the predictive ability of SBCE classified as cash settled is statistically significantly higher than that of equity settled SBCE. Overall, our findings suggest that recognised SBCE, particularly cash settled SBCE (i.e. fair value-adjusted expense), is useful for predicting future firm performance.

Original language	English
Pages (from-to)	445-478
Number of pages	34
Journal	Accounting and Business Research
Volume	55
Issue number	4
Early online date	18 Jun 2024
DOIs	https://doi.org/10.1080/00014788.2024.2346836
Publication status	Published - 2025

Bibliographical note

This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent.

Funding

We gratefully acknowledge the helpful comments and recommendations made by Igor Goncharov, the Associate Editor, and two anonymous reviewers. We also thank Panagiotis Andrikopoulos, Nathan Joseph, Yilmaz Guney, Abay Mulatu, Daniel Santamaria, Salem Alhababsah, Yassine Salmi, the participants of the Corporate Governance Research seminars at Coventry Business School, the participants of the research seminar series at University of Sussex Business School, the participants of the British Accounting and Finance Association Northern Area Group Annual Conference in 2019, the participants of the 25th Financial Reporting and Business Communication (FRBC) Annual Conference in 2022, the participants of the 45th European Accounting Association Annual Congress in 2023, and the participants of the IASB Workshop on IFRS Foundation Breakfast Update: Research on IFRS Accounting Standards at Aalto University in 2023. Their support and contributions have been instrumental in shaping this research.

Keywords

G32
J33
M41
M52
cash settled-based compensation
employee compensation expenses
equity settled-based compensation
fair value
predictability
share-based compensation

ASJC Scopus subject areas

Accounting

Access to Document

10.1080/00014788.2024.2346836Licence: CC BY

Alhaj-Ismail2024VoRFinal published version, 1.04 MBLicence: CC BY

Cite this

@article{849520a668b049d0bc322a1270d887b1,

title = "The predictive ability of share-based compensation expense",

abstract = "This paper examines the ability of share-based compensation expense (SBCE) to predict future firm performance relative to other employee compensation expenses. It also examines whether cash settled-based compensation expense has greater predictive ability for future performance than equity settled expense. Using a sample of 443 firms listed in the UK between 2005 and 2018, we find that the predictive ability of SBCE is statistically significantly higher than that of other employee compensation expenses. Furthermore, the results show that the predictive ability of SBCE classified as cash settled is statistically significantly higher than that of equity settled SBCE. Overall, our findings suggest that recognised SBCE, particularly cash settled SBCE (i.e. fair value-adjusted expense), is useful for predicting future firm performance.",

keywords = "G32, J33, M41, M52, cash settled-based compensation, employee compensation expenses, equity settled-based compensation, fair value, predictability, share-based compensation",

author = "Alaa Alhaj-Ismail and Sami Adwan",

note = "This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent.",

year = "2025",

doi = "10.1080/00014788.2024.2346836",

language = "English",

volume = "55",

pages = "445--478",

journal = "Accounting and Business Research",

issn = "0001-4788",

publisher = "Taylor and Francis",

number = "4",

}

TY - JOUR

T1 - The predictive ability of share-based compensation expense

AU - Alhaj-Ismail, Alaa

AU - Adwan, Sami

N1 - This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent.

PY - 2025

Y1 - 2025

N2 - This paper examines the ability of share-based compensation expense (SBCE) to predict future firm performance relative to other employee compensation expenses. It also examines whether cash settled-based compensation expense has greater predictive ability for future performance than equity settled expense. Using a sample of 443 firms listed in the UK between 2005 and 2018, we find that the predictive ability of SBCE is statistically significantly higher than that of other employee compensation expenses. Furthermore, the results show that the predictive ability of SBCE classified as cash settled is statistically significantly higher than that of equity settled SBCE. Overall, our findings suggest that recognised SBCE, particularly cash settled SBCE (i.e. fair value-adjusted expense), is useful for predicting future firm performance.

AB - This paper examines the ability of share-based compensation expense (SBCE) to predict future firm performance relative to other employee compensation expenses. It also examines whether cash settled-based compensation expense has greater predictive ability for future performance than equity settled expense. Using a sample of 443 firms listed in the UK between 2005 and 2018, we find that the predictive ability of SBCE is statistically significantly higher than that of other employee compensation expenses. Furthermore, the results show that the predictive ability of SBCE classified as cash settled is statistically significantly higher than that of equity settled SBCE. Overall, our findings suggest that recognised SBCE, particularly cash settled SBCE (i.e. fair value-adjusted expense), is useful for predicting future firm performance.

KW - G32

KW - J33

KW - M41

KW - M52

KW - cash settled-based compensation

KW - employee compensation expenses

KW - equity settled-based compensation

KW - fair value

KW - predictability

KW - share-based compensation

UR - https://www.scopus.com/pages/publications/85196322179

U2 - 10.1080/00014788.2024.2346836

DO - 10.1080/00014788.2024.2346836

M3 - Article

SN - 0001-4788

VL - 55

SP - 445

EP - 478

JO - Accounting and Business Research

JF - Accounting and Business Research

IS - 4

ER -

The predictive ability of share-based compensation expense

Abstract

Bibliographical note

Funding

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Cite this