Earnings Management and CEO Cash Compensation
International Journal of Finance, Vol. 16, No. 4, pp. 3324-45, 2004
Posted: 4 Oct 2004
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: Suggested Citation