CEO Pay Contracts and IFRS Reconciliations

Abstract:     
We examine whether the type of performance measures included in a CEO pay contract is associated with the UK GAAP to IFRS reconciliation process. Using a comprehensive dataset, mainly hand-collected from the firms’ remuneration reports, we report strong indications that, given the existence of an accounting-related vesting target in their contract, CEOs strategically reconcile their accounts with a view to increasing their expected personal wealth. We test our hypotheses under a number of different specifications including a propensity score matching analysis. Our study contributes to the extensive literature on the relations between financial reporting policy and incentives in a setting that makes our analysis less subject to methodological concerns that plague this research area.

Number of Pages in PDF File: 48

Keywords: IFRS Reconciliations, CEO pay contracts, Performance measures, Incentives, Accounting choice, Positive Accounting Theory

JEL Classification: M41, G34, M21

working papers series