The Influence of Stock-Based Compensation on Emerging Markets’ Revenue and Market Capitalization

Abstract

Introduction: Stock-based compensation metric is pivotal as it may be a force that threaten financial performance in emerging markets and could cause an increased volatility within markets operations in a fierce competitive industry.

Objectives: This study examines the impact of stock-based compensation (SBC) on the financial performance of emerging markets.

Methods: Using a cross-sectional dataset from Damodaran covering 94 emerging markets for 2023, the study applies Ordinary Least Squares (OLS) and Fully Modified Ordinary Least Squares (FMOLS) models to analyze short- and long-run relationships between SBC and financial performance.

Results: In the results stock-based compensation shows a marginally negative effect on market capitalization in both estimation models, despite the general success of SBC initiatives. In contrast, the number of employees and revenue per employee display a positive correlation with both market capitalization and revenue.

Conclusions: The findings are relevant to policymakers, regulators, and shareholders in emerging markets. This study offers key insights into how SBC affects financial performance, contributing to discussions on governance and investment in emerging economies. The study was limited by the lack of panel data on emerging firms. Future research should explore SBC impacts using longitudinal datasets and various SBC structures.