The Effects Of Executive Compensation Contracts And Auditor Effort On Pro Forma Reporting Decisions
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Author | : Dirk E. Black |
Publisher | : |
Total Pages | : 37 |
Release | : 2014 |
Genre | : |
ISBN | : |
We investigate two potential deterrents of aggressive pro forma reporting. First, the design of compensation contracts can encourage managers to adopt either a short- or a long-term focus. While it is difficult to observe whether compensation contracts are tied directly to pro forma earnings numbers, we posit that managers with a short-term horizon are more likely to make aggressive pro forma exclusions than managers with a long-term focus. Second, auditor effort can discourage potentially misleading pro forma earnings adjustments. Consistent with our predictions, we find that when compensation contracts include a long-term performance plan, managers are less likely to make potentially misleading pro forma earnings adjustments. Similarly, we find some evidence of a negative association between auditor effort (as proxied by higher-than-normal audit fees) and potentially misleading earnings adjustments. Taken together, this evidence is consistent with the notion that the design of compensation contracts and auditor effort can significantly influence managers' pro forma reporting decisions. The results also suggest that investors discount earnings information when opportunism is likely to motivate managers' earnings adjustments. Moreover, when managers make aggressive earnings exclusions in the presence of safeguards that limit opportunistic behavior, investors appear to react even more negatively.
Author | : Bo Sun |
Publisher | : DIANE Publishing |
Total Pages | : 33 |
Release | : 2010-08 |
Genre | : Business & Economics |
ISBN | : 1437930980 |
Analyzes executive compensation in a setting where managers may take a costly action to manipulate corporate performance, and whether managers do so is stochastic. Examines how the opportunity to manipulate affects the optimal pay contract, and establishes necessary and sufficient conditions under which earnings management occurs. The author¿s model provides a set of implications on the role earnings management plays in driving the time-series and cross-sectional variation of executive compensation. In addition, the model's predictions regarding the changes of earnings management and executive pay in response to corporate governance legislation are consistent with empirical observations. Charts and tables.
Author | : Bo Sun |
Publisher | : |
Total Pages | : 42 |
Release | : 2009 |
Genre | : Corporate governance |
ISBN | : |
This paper analyzes executive compensation in a setting where managers may take a costly action to manipulate corporate performance, and whether managers do so is stochastic. We examine how the opportunity to manipulate affects the optimal pay contract, and establish necessary and sufficient conditions under which earnings management occurs. Our model provides a set of implications on the role earnings management plays in driving the time-series and cross-sectional variation of executive compensation. In addition, the model's predictions regarding the changes of earnings management and executive pay in response to corporate governance legislation are consistent with empirical observations.
Author | : David Aboody |
Publisher | : Now Publishers Inc |
Total Pages | : 98 |
Release | : 2010 |
Genre | : Business & Economics |
ISBN | : 1601983425 |
Executive Compensation and Financial Accounting provides research perspectives on the interface between financial reporting and disclosure policies and executive compensation. In particular, it focuses on two important dimensions: - the effects of compensation-based incentives on executives' financial accounting and disclosure choices, and - the role of financial reporting and income tax regulations in shaping executive compensation practices. Executive Compensation and Financial Accounting examines the key dimensions of the relation between financial accounting and executive compensation. Specifically, the authors examine the extent to which compensation plans create incentives for executives to make particular financial reporting and disclosure choices. They also examine the extent to which accounting regulation creates incentives for firms to design particular compensation plans for their executives.
Author | : Nicola Moscariello |
Publisher | : Cambridge Scholars Publishing |
Total Pages | : 420 |
Release | : 2019-11-25 |
Genre | : Business & Economics |
ISBN | : 1527543978 |
The use of alternative performance indicators (APMs) (also known as ‘Non-GAAP’ earnings) is a widespread phenomenon, and the increased reliance on APMs has recently triggered a strong debate among regulators, managers and investors on the nature of these ‘tailored’ earnings and on the economic reasons behind them. On one hand, APMs might reflect managers’ attempt to offer useful information to predict companies’ future sustainable cash-flows and earnings (information hypothesis), while, on the other, the non-standardized nature of these metrics impacts on the comparability of the financial results, and reduces the reliability and the faithful representation of financial information (opportunistic hypothesis). By collecting several theoretical and empirical contributions on APMs, this book provides a number of interesting and useful insights on the economics of APMs and their impact on financial markets.
Author | : Xiaohong Liu |
Publisher | : |
Total Pages | : 0 |
Release | : 2012 |
Genre | : |
ISBN | : |
The joint provision of audit and non-audit services by audit firms to their audit clients has posed a threat to auditor independence. To mitigate the independence problem, the U.S. Securities and Exchange Commission (SEC) issued a regulation (SEC 2003) that prohibits audit partners from receiving compensation for the sale of non-audit services to their audit clients. This study examines the effects of this regulatory change on the effort and reporting decisions of audit partners. We show that partners in an audit firm strategically change the firm's liability-sharing rule. As a consequence, the regulation restores truthful reporting but has an undesirable negative effect on audit effort. The effect of the regulation on the welfare of the economy (defined as the total payoff to both audit firms and their clients) hinges on the tradeoff between the benefit of the regulation, which is derived from the inducement of truthful reporting, and the cost of the regulation, which results from less diligent audit work. We show that the regulation is more likely to increase the welfare in a strong legal regime (where the legal liability cost of auditor litigation is high) than in a weak legal regime.
Author | : Lucian Bebchuk |
Publisher | : Harvard University Press |
Total Pages | : 293 |
Release | : 2006-09-30 |
Genre | : Business & Economics |
ISBN | : 067426195X |
The company is under-performing, its share price is trailing, and the CEO gets...a multi-million-dollar raise. This story is familiar, for good reason: as this book clearly demonstrates, structural flaws in corporate governance have produced widespread distortions in executive pay. Pay without Performance presents a disconcerting portrait of managers' influence over their own pay--and of a governance system that must fundamentally change if firms are to be managed in the interest of shareholders. Lucian Bebchuk and Jesse Fried demonstrate that corporate boards have persistently failed to negotiate at arm's length with the executives they are meant to oversee. They give a richly detailed account of how pay practices--from option plans to retirement benefits--have decoupled compensation from performance and have camouflaged both the amount and performance-insensitivity of pay. Executives' unwonted influence over their compensation has hurt shareholders by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers' incentives. This book identifies basic problems with our current reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make these boards more independent of executives as recent reforms attempt to do. Rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performance points the way to restoring corporate integrity and improving corporate performance.
Author | : Bonnie R. Rabin |
Publisher | : |
Total Pages | : 240 |
Release | : 1986 |
Genre | : Corporations |
ISBN | : |
Author | : Ellen Pavlik |
Publisher | : Praeger |
Total Pages | : 182 |
Release | : 1991-06-21 |
Genre | : Business & Economics |
ISBN | : |
This book is a thorough study of what determines executive compensation levels, challenging prior research which tended to focus solely on the influence of corporate financial performance.
Author | : Susan Gribble Pourciau |
Publisher | : |
Total Pages | : 144 |
Release | : 1988 |
Genre | : Compensation management |
ISBN | : |