CEO and Outside Director Equity Compensation: Substitutes or Complements for Management Earnings Forecasts?

40 Pages Posted: 16 May 2018

See all articles by Hyung Tae Kim

Hyung Tae Kim

Craig School of Business

Byungjin Kwak

KAIST-Graduate School of Finance

Jaywon Lee

Korea Advanced Institute of Science and Technology (KAIST); Sejong University

Inho Suk

State University of New York (SUNY) at Buffalo - School of Management

Date Written: April 1, 2018

Abstract

This study examines how the equity compensation of chief executive officers (CEO) and that of outside directors affect management earnings forecasts (MFs) and the relationship between these two positions in terms of compensation. Our evidence reveals that CEO (director) equity compensation is positively associated with MF likelihood, frequency, and accuracy when director (CEO) equity compensation is not high. However, an increase in director (CEO) equity compensation is not effective in improving disclosure quality when the level of CEO (director) equity compensation is already high. These results suggest that the two incentive mechanisms act as substitutes when both are intensively used in the context of MF disclosure.

Keywords: CEO Equity Compensation, Director Equity Compensation, Management Earnings Forecasts, Information Asymmetry, Agency Costs

JEL Classification: G30, G32, M40, M41

Suggested Citation

Kim, Hyung Tae and Kwak, Byungjin and Lee, Jaywon and Suk, Inho, CEO and Outside Director Equity Compensation: Substitutes or Complements for Management Earnings Forecasts? (April 1, 2018). European Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3171921

Hyung Tae Kim

Craig School of Business ( email )

5241 North Maple Avenue
Fresno, CA 93740
United States

Byungjin Kwak

KAIST-Graduate School of Finance ( email )

87 Hoegiro
Dongdaemun-Gu
Seoul, 130-722
Korea
+82-2-958-3417 (Phone)

Jaywon Lee (Contact Author)

Korea Advanced Institute of Science and Technology (KAIST) ( email )

Korea, Republic of (South Korea)

Sejong University ( email )

143-743 Seoul
Korea, Republic of (South Korea)

Inho Suk

State University of New York (SUNY) at Buffalo - School of Management ( email )

342 Jacobs Management Center
Buffalo, NY 14260-4000
United States
716-645-3215 (Phone)

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