Executive Compensation and Earnings Management under Moral Hazard
نویسنده
چکیده
This paper analyzes executive compensation in a setting where managers may take a costly action to manipulate corporate performance, and whether managers do so is stochastic. We examine how the opportunity to manipulate affects the optimal pay contract, and establish necessary and sufficient conditions under which earnings management occurs. Our model provides a set of implications on the role earnings management plays in driving the time-series and cross-sectional variation of executive compensation. In addition, the model’s predictions regarding the changes of earnings management and executive pay in response to corporate governance legislation are consistent with empirical observations.
منابع مشابه
Executive Compensation and Contract-driven Earnings Management
Earnings management is found to be driven by different managerial incentives. Previous studies have identified that executive compensation contracts create incentives for earnings management. The agency theory and the positive accounting theory provide explanations for contract-driven earnings management. This study links the agency theory and the positive accounting theory and reviews the earl...
متن کاملDoes Ownership Structure Affect the Motivation of Compensation Contract of Earnings Management? —From China’s Data
This paper is to explore that if ownership structure exactly affects on earnings management, especially on how to constrain executive compensation motivation to earnings management in the emerging market of China. We use five variables to quantify various corporate governance mechanisms including ownership structure and executive compensation for 1024 listed firms sample within two years. We fi...
متن کاملEssays on the Structural Models of Executive Compensation
This dissertation is composed of three chapters in which I use both reduced-form approach and structural approach to study executive compensation in S&P1500 rms from 1993 to 2005. Chapter 1 provides the literature and methodology background of this dissertation. I summarize existing accounting empirical studies on executive compensation under two tasks, that is, (1) testing contract theory and...
متن کاملIdentifying and Testing Generalized Moral Hazard Models of Managerial Compensation
This paper seeks to answer two questions about executive compensation. How important is hidden information relative to moral hazard, and how biased are empirical measures of moral hazard in econometric models that do not account for hidden information? An analytical stage of this paper exploit restrictions from the theory of optimal contracting to identify hidden information and di¤erentiate it...
متن کاملSelf-enforcing Clawback Provisions in Executive Compensation Self-enforcing Clawback Provisions in Executive Compensation *
A clawback provision is the right of a firm to recover from an executive’s compensation as the result of triggering events, such as a financial restatement. We argue that the adoption of clawback provisions may exacerbate a manager’s incentive to avoid financial restatements via earnings management. Only when the accounting verifiability is high, making earnings management very costly, can claw...
متن کامل