This thesis investigates statutory executive stock option (ESO) disclosures by Australian listed companies, and their nature, extent and association with governance characteristics. The study is motivated by the limited prior Australian studies that find evidence of low levels of compliance with ESO disclosures (Nelson and Percy, 2005), and by the changes in Australia's regulatory environment over the financial years 2001 to 2004. Arising from these motivations, three research questions are addressed: 1) what is the nature and extent of compliance with ESO disclosures in annual reports and does it change over time?, 2) how does corporate governance influence compliance with ESO disclosures?, and 3) what other factors influence compliance with ESO disclosures? Based on prior research and an application of agency theory, the research questions are addressed by systematically evaluating ESO disclosure compliance, and by modelling and testing the governance and other factors associated with companies' disclosure practices over the 2001 to 2004 study period. Within the agency framework, it is argued that effective governance mechanisms mitigate agency costs by decreasing information asymmetry through increased disclosure. Hence it is predicted that internal governance mechanisms, including the effectiveness of the board of directors, the effectiveness of the audit committee, the existence of a compensation committee, and management incentives are associated with the level of compliance with ESO disclosures. In addition, external governance mechanisms are predicted to influence compliance with ESO disclosures. Specifically, it is predicted that firms responded positively to the increased media and regulatory scrutiny on financial reporting practices as a result of major corporate collapses in Australia and the United States. Furthermore, it is predicted that regulatory intervention, in the form of new and comprehensive ESO disclosure requirements, as well as the authoritative guidance on valuing options and active enforcement efforts by ASIC, have contributed to increased levels of compliance. Using a combination of univariate and multivariate procedures, compliance and governance characteristics are tested over the financial years 2001 to 2004, to capture the changes in compliance over time and to examine the hypothesised relationships. The results of this thesis indicate that Australian companies do not fully comply with ESO disclosure requirements. Nevertheless, the results show that overall compliance has increased progressively from 2001 to 2004, suggesting that the increased scrutiny of companies' financial reporting practices following major corporate collapses has motivated companies to increase compliance. Notably, compliance has increased after the introduction of new and more comprehensive disclosure requirements for ESOs, as well as increased authoritative guidance and enforcement efforts by ASIC. However, despite the overall evidence of improvement in compliance levels, the results continue to reveal management's reluctance to disclose ESO information that may be considered sensitive (for example, price and value-related information). The multivariate results indicate that firms with a larger board of directors and a larger audit committee are more likely to encourage greater levels of compliance with ESO disclosures. However, a larger board of directors appears to take a holistic approach to monitoring company activities by encouraging higher overall compliance rather than focusing on specific, sensitive disclosures. Where a less independent Chairperson is present, the firm is more likely to disclose more sensitive information only, indicating a substitution effect whereby firms mitigate the agency problems associated with this lack of independence by increasing sensitive disclosures. Also, where the Chief Executive Officer's remuneration is relatively larger, companies are less forthcoming about ESO information. With respect to the influence of external corporate governance, the findings indicate that companies identified as poor performers by the Australian Shareholders' Association (a measure of external governance) exhibit lower levels of overall compliance, but not compliance with sensitive disclosures. This latter finding suggests that poorly performing firms provide similar levels of sensitive and important information as other firms, possibly to direct attention away from the low performance of the company. Consistent with prior disclosure research, other factors associated with compliance include leverage, where firms that are more highly leveraged disclose more sensitive information in an effort to become more transparent to creditors, thus reducing their monitoring costs. The use of a Big 4 auditor (a proxy for auditor quality) is associated with overall compliance, which indicates that external auditors primarily ensure that the financial report as a whole is compliant with the regulations, rather than identifying sensitive disclosures in detail, particularly where these disclosures may not have a material effect. Lastly, performance (as measured by profit or lossmaking status) is negatively associated with compliance. By investigating in detail the nature and extent of compliance with ESO disclosures over time and its relation to governance characteristics, the findings of this study demonstrate that while companies appear to lack full compliance with ESO disclosures, compliance has increased over time with active regulatory enforcement and assistance and comprehensive disclosure requirements. Of particular interest, is that the nature of compliance illustrates the very low levels of compliance with important, but sensitive, components of the required ESO disclosures. Importantly, the adoption of stronger governance structures appears to enhance compliance with ESO disclosures, including sensitive disclosures. Therefore, the findings of this study have important implications for corporate regulators, standard setters, financial statement preparers, shareholders and other users of financial reports with an interest in ESOs.