Beyond the Restatement Decision: The Persistence of Executive Compensation in Explaining Disclosure Transparency Choice

41 Pages Posted: 19 Aug 2011

See all articles by Brian Hogan

Brian Hogan

University of Pittsburgh - Accounting Group; Northeastern University - College of Business Administration

Gregory A. Jonas

Case Western Reserve University

Date Written: August 15, 2011

Abstract

In the post-Enron era the number of “restatements” of annual financial results increased from less than 300 per year prior to 2001 to more than 1000 per year in 2005 and 2006. Prior research has demonstrated that CEO compensation is positively associated with companies that issue restatements. Notwithstanding associated risk of job loss and compensation reduction, these managers sometimes reap pecuniary benefits from restatements. SEC regulations require companies to file an 8K to report the need to restate prior results. However, on average over 40% of restatements are “stealthy” in that they do not file an 8K. For companies that issue a restatement we examine the association between executive pay how the restatement was disclosed (whether an 8K was filed). We find that equity pay for executives is negatively associated with filing an 8K. Our results suggest that higher equity pay motivates managers to minimize the transparency of restatements.

Keywords: Compensation, Restatement, Transparency

JEL Classification: M41, M52

Suggested Citation

Hogan, Brian and Jonas, Gregory A., Beyond the Restatement Decision: The Persistence of Executive Compensation in Explaining Disclosure Transparency Choice (August 15, 2011). Available at SSRN: https://ssrn.com/abstract=1910075 or http://dx.doi.org/10.2139/ssrn.1910075

Brian Hogan

University of Pittsburgh - Accounting Group ( email )

United States
412-624-1315 (Phone)

Northeastern University - College of Business Administration ( email )

360 Huntington Ave.
Boston, MA 02115
United States
617-373-3889 (Phone)

Gregory A. Jonas (Contact Author)

Case Western Reserve University ( email )

10900 Euclid Ave.
468 PBL
Cleveland, OH 44106
United States
(216) 368-3817 (Phone)

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