Equity Incentives and Earnings Management: Evidence from the Banking Industry

46 Pages Posted: 14 Jan 2009

See all articles by Qiang Cheng

Qiang Cheng

Singapore Management University

Terry Warfield

University of Wisconsin - Wisconsin School of Business

Minlei Ye

University of Toronto

Date Written: January 1, 2009

Abstract

We examine the relationship between equity incentives and earnings management in the banking industry. By focusing on this regulated industry and using industry-specific earnings management proxies, we provide evidence on the impact of regulation on earnings management arising from CEOs' equity incentives. We find that bank managers with high equity incentives are more likely to manage earnings, but only when capital ratios are closer to the minimum regulatory capital requirements. This finding indicates that in the banking industry, potential regulatory intervention induces, rather than mitigates, earnings management arising from equity incentives.

Keywords: equity incentives, earnings management, the banking industry

JEL Classification: M41, M43, G21, G34, J33

Suggested Citation

Cheng, Qiang and Warfield, Terry D. and Ye, Minlei, Equity Incentives and Earnings Management: Evidence from the Banking Industry (January 1, 2009). CAAA Annual Conference 2009 Paper, Available at SSRN: https://ssrn.com/abstract=1326558 or http://dx.doi.org/10.2139/ssrn.1326558

Qiang Cheng

Singapore Management University ( email )

60 Stamford Road
Singapore, 178900
Singapore

Terry D. Warfield (Contact Author)

University of Wisconsin - Wisconsin School of Business ( email )

716 Langdon Street
Madison, WI 53706-1481
United States

Minlei Ye

University of Toronto ( email )

Toronto, Ontario M5S 3G8
Canada

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