Managers’ Pay Duration and Voluntary Disclosures

50 Pages Posted: 30 Dec 2013 Last revised: 14 May 2015

See all articles by Qiang Cheng

Qiang Cheng

Singapore Management University

Young Jun Cho

Singapore Management University - School of Accountancy

Jae B. Kim

Lehigh University - College of Business & Economics

Date Written: April 9, 2014

Abstract

In this paper, we examine the effect of managers’ pay duration on firms’ voluntary disclosures. Pay duration refers to the average period that it takes for managers’ annual compensation to vest. We hypothesize and find that pay duration can incentivize managers to provide more bad news earnings forecasts. This result holds after controlling for the level of stock-based compensation and the endogeneity of pay duration. In addition, we find that the effect of pay duration is more pronounced for firms with weaker governance and for firms with a more opaque information environment, where the marginal benefits of additional disclosures are higher. Our additional analyses indicate that managers with a longer pay duration issue more accurate earnings forecasts. Overall, our paper contributes to the literature by documenting that lengthening the vesting periods of managers’ compensation can induce managers to be more forthcoming with bad news.

Keywords: Voluntary disclosures, management forecasts, executive compensation, pay duration

JEL Classification: G39, J33, M41

Suggested Citation

Cheng, Qiang and Cho, Young Jun and Kim, Jae Bum, Managers’ Pay Duration and Voluntary Disclosures (April 9, 2014). 2014 Canadian Academic Accounting Association (CAAA) Annual Conference, Singapore Management University School of Accountancy Research Paper No. 2015-28, Available at SSRN: https://ssrn.com/abstract=2372814 or http://dx.doi.org/10.2139/ssrn.2372814

Qiang Cheng (Contact Author)

Singapore Management University ( email )

60 Stamford Road
Singapore, 178900
Singapore

Young Jun Cho

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore, 178900
Singapore

Jae Bum Kim

Lehigh University - College of Business & Economics

621 Taylor Street
Bethlehem, PA 18015
United States

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