CEO and Outside Director Equity Compensation: Substitutes or Complements for Management Earnings Forecasts?
40 Pages Posted: 16 May 2018
Date Written: April 1, 2018
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: Suggested Citation