Earnings Management and CEO Cash Compensation

International Journal of Finance, Vol. 16, No. 4, pp. 3324-45, 2004

Posted: 4 Oct 2004

See all articles by Hoje Jo

Hoje Jo

Santa Clara University

Yong H. Kim

University of Cincinnati

Yongtae Kim

Santa Clara University - Leavey School of Business

Abstract

Using firms' cash compensation data, we examine the empirical relationship between earnings management and the weight placed on accounting performance measure in compensation. Our results indicate that the weight on accounting income in compensation decreases as the tendency of using discretionary accruals increases. A plausible interpretation of the findings is that compensation committees view the managers' use of discretionary accruals as providing crude measure of managers' and firm performance and they actively intervene to reduce the ability of executives to manipulate compensation by lowering the weight on accounting performance.

Keywords: Earnings management, CEO compensation, Discretionary accruals, Performance measure, Corporate governance

JEL Classification: M41, M43, J33, G35

Suggested Citation

Jo, Hoje and Kim, Yong H. and Kim, Yongtae, Earnings Management and CEO Cash Compensation. International Journal of Finance, Vol. 16, No. 4, pp. 3324-45, 2004, Available at SSRN: https://ssrn.com/abstract=599103

Hoje Jo

Santa Clara University ( email )

Santa Clara, CA 95053
United States
408-224-8890 (Phone)
408-554-4029 (Fax)

Yong H. Kim (Contact Author)

University of Cincinnati ( email )

Lindner College of Business
410 Carl H. Lindner Hall, P.O. Box 210195
Cincinnati, OH 45221
United States
513-556-7084 (Phone)
513-556-0979 (Fax)

Yongtae Kim

Santa Clara University - Leavey School of Business ( email )

500 El Camino Real
Santa Clara, CA California 95053
United States
(408) 554-4667 (Phone)
(408) 554-2331 (Fax)

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