The effect of expensing share-based payments on basic earnings per share of South African listed companies

Abstract

Purpose

This study aims to investigate the post-implementation impact of expensing share-based payment transactions on basic earnings per share. In recent years, IFRS 2 was one of the most opposed and controversial standards issued by the IASB.

Design/methodology/approach

The sample relates to the period immediately after implementation (2006-2009) and consists of the 531 firm-year observations where share-based payments were present among Johannesburg Stock Exchange listed companies. The effect of share-based payments on basic earnings per share is assessed.

Findings

The findings of this study show a statistically significant impact on basic earnings per share, but the results are more modest than suggested by prior studies. The number of companies reporting a share-based payment expense increased over the five-year period 2005-2009.

Originality/value

The introduction of IFRS 2 caused small but not necessarily immaterial changes to the income profile of companies. This is important for analysts and general users of financial information who need to be aware of these changes. The results also suggest that IFRS 2 did not merely cause accounting policy changes, but has impacted on the way share-based payment transactions are used by companies.

Citation

Pretorius, D. and de Villiers, C. (2013), "The effect of expensing share-based payments on basic earnings per share of South African listed companies", Meditari Accountancy Research, Vol. 21 No. 2, pp. 178-190. https://doi.org/10.1108/MEDAR-03-2013-0006