Fair Value Accounting and Gains from Asset Securitizations: A Convenient Earnings Management Tool with Compensation Side-Benefits

67 Pages Posted: 17 Sep 2004 Last revised: 15 Mar 2009

See all articles by Patricia M. Dechow

Patricia M. Dechow

University of Southern California - Leventhal School of Accounting; University of California, Berkeley - Accounting Group

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management

Catherine Shakespeare

University of Michigan - Stephen M. Ross School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: February 11, 2009

Abstract

We provide evidence that managers use the discretion afforded by fair-value accounting rules to manage the size of reported securitization gains. We show that the ambiguity allowed in discount rate choice is one way that managers can influence these gains. We investigate whether CEO compensation is less sensitive to securitization gains than to other earnings components in the presence of proxies for how independent (outsiders, females, fewer CEO-selected directors) and informed (financial expertise) directors are. We find weak evidence of less earnings management in firms with more independent boards, but find no evidence that our director characteristics influence CEO pay-sensitivity to the gains. Thus, boards do not appear to intervene and adjust compensation for implementation problems related to fair-value accounting rules for securitizations.

Keywords: securitizations, earnings management, fair value, financial expert, outside directors, reliability, gain

JEL Classification: M41, M45, M45, J33, G29, G34, G39

Suggested Citation

Dechow, Patricia M. and Myers, Linda A. and Shakespeare, Catherine, Fair Value Accounting and Gains from Asset Securitizations: A Convenient Earnings Management Tool with Compensation Side-Benefits (February 11, 2009). Available at SSRN: https://ssrn.com/abstract=1111594 or http://dx.doi.org/10.2139/ssrn.1111594

Patricia M. Dechow

University of Southern California - Leventhal School of Accounting ( email )

Los Angeles, CA 90089-0441
United States

University of California, Berkeley - Accounting Group ( email )

Haas School of Business
Berkeley, CA 94720
United States

Linda A. Myers

University of Tennessee, Haslam College of Business, Accounting and Information Management ( email )

Knoxville, TN
United States

Catherine Shakespeare (Contact Author)

University of Michigan - Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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