Chief Executive Officer Equity Incentives and Accounting Irregularities

Rock Center for Corporate Governance at Stanford University Working Paper No. 4

Journal of Accounting Research, Chicago, Vol. 48, No. 2, p. 225, May 2010

69 Pages Posted: 12 May 2008 Last revised: 4 Apr 2012

See all articles by Chris Armstrong

Chris Armstrong

University of Pennsylvania - Accounting Department

Alan D. Jagolinzer

University of Cambridge Judge Business School

David F. Larcker

Stanford University - Graduate School of Business

Date Written: September 7, 2009

Abstract

This study examines whether Chief Executive Officer (CEO) equity-based holdings and compensation provide incentives to manipulate accounting reports. While several prior studies have examined this important question, the empirical evidence is mixed and the existence of a link between CEO equity incentives and accounting irregularities remains an open question. Because inferences from prior studies may be confounded by assumptions inherent in research design choices, we use propensity-score matching and assess hidden (omitted variable) bias within a broader sample. In contrast to most prior research, we do not find evidence of a positive association between CEO equity incentives and accounting irregularities after matching CEOs on the observable characteristics of their contracting environments. Instead, we find some evidence that accounting irregularities occur less frequently at firms where CEOs have relatively higher levels of equity incentives.

Keywords: equity incentives, accounting restatements, propensity score matching

JEL Classification: J33, G34, M41, M43, M52

Suggested Citation

Armstrong, Chris S. and Jagolinzer, Alan D. and Larcker, David F., Chief Executive Officer Equity Incentives and Accounting Irregularities (September 7, 2009). Journal of Accounting Research, Chicago, Vol. 48, No. 2, p. 225, May 2010 . Available at SSRN: https://ssrn.com/abstract=1132411

Chris S. Armstrong

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Alan D. Jagolinzer

University of Cambridge Judge Business School ( email )

Trumpington Street
University of Cambridge
Cambridge, CB2 1AG
United Kingdom

David F. Larcker (Contact Author)

Stanford University - Graduate School of Business ( email )

Graduate School of Business
518 Memorial Way
Stanford, CA 94305-5015
United States
650-725-6159 (Phone)

Register to save articles to
your library

Register

Paper statistics

Downloads
1,753
Abstract Views
6,828
rank
9,016
PlumX Metrics