Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

The association between CEO incentive rewards and earnings management Do institutional features matter?

The association between CEO incentive rewards and earnings management Do institutional features... Purpose – The purpose of this paper is to investigate whether or not there is a link between CEO incentive‐based compensation and earnings management and to examine how institutional environment's features influence such link. Design/methodology/approach – To test the predictions, the authors use a panel of 1,500 American, Canadian, British, and French firm‐year observation over the period 2004‐2008. Findings – The authors find a significant association between earnings management and CEO incentive‐based compensation. Moreover, the analysis provides evidence that institutional factors are strong determinants of this association. Specifically, the results show that firms from countries within the Anglo‐American corporate governance model, which provides greater protection of shareholder rights, ensures strict enforcement of law, and scores high on board oversight, tend to have lower level of earnings management. The analysis shows however, that beside the formal corporate governance quality, it is relevant to consider weaker shareholder protection and lower law enforcement indexes to explain earnings management in firms from countries within the Euro‐Continental corporate governance model. Originality/value – This paper is the first to provide insights regarding the extent to which CEO incentive rewards imply management discretion and to indicate how much institutional features matter. The analysis contributes to two distinct strands of research. It extends prior research on the association between executive compensation and earnings management and adds to the literature demonstrating a relationship between institutional factors and financial decisions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png EuroMed Journal of Business Emerald Publishing

The association between CEO incentive rewards and earnings management Do institutional features matter?

EuroMed Journal of Business , Volume 9 (1): 19 – Apr 29, 2014

Loading next page...
 
/lp/emerald-publishing/the-association-between-ceo-incentive-rewards-and-earnings-management-Iu9O20fgNM
Publisher
Emerald Publishing
Copyright
Copyright © 2014 Emerald Group Publishing Limited. All rights reserved.
ISSN
1450-2194
DOI
10.1108/EMJB-11-2012-0019
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to investigate whether or not there is a link between CEO incentive‐based compensation and earnings management and to examine how institutional environment's features influence such link. Design/methodology/approach – To test the predictions, the authors use a panel of 1,500 American, Canadian, British, and French firm‐year observation over the period 2004‐2008. Findings – The authors find a significant association between earnings management and CEO incentive‐based compensation. Moreover, the analysis provides evidence that institutional factors are strong determinants of this association. Specifically, the results show that firms from countries within the Anglo‐American corporate governance model, which provides greater protection of shareholder rights, ensures strict enforcement of law, and scores high on board oversight, tend to have lower level of earnings management. The analysis shows however, that beside the formal corporate governance quality, it is relevant to consider weaker shareholder protection and lower law enforcement indexes to explain earnings management in firms from countries within the Euro‐Continental corporate governance model. Originality/value – This paper is the first to provide insights regarding the extent to which CEO incentive rewards imply management discretion and to indicate how much institutional features matter. The analysis contributes to two distinct strands of research. It extends prior research on the association between executive compensation and earnings management and adds to the literature demonstrating a relationship between institutional factors and financial decisions.

Journal

EuroMed Journal of BusinessEmerald Publishing

Published: Apr 29, 2014

Keywords: Corporate governance; Earnings management; Anglo‐American corporate governance model; CEO incentive‐based compensation; Euro‐Continental corporate governance model; Institutional factors

References