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Director Compensation and the Reliability of Accounting Information

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  • Anwar Boumosleh
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    Abstract

    This paper studies the effect of incentive-based compensation on directors' monitoring of management. Using total accruals to measure the level of earnings management, I find that director stock option compensation is associated with higher levels of total accruals. I interpret this result to suggest that director stock options are more likely to align interests of directors with those of managers and that this convergence of interest manifests in lower transparency and reliability of financial information. The results suggest that director stock option compensation provides incentive for directors to compromise their task in the financial reporting process. Copyright (c) 2009, The Eastern Finance Association.

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    Bibliographic Info

    Article provided by Eastern Finance Association in its journal Financial Review.

    Volume (Year): 44 (2009)
    Issue (Month): 4 (November)
    Pages: 525-539

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    Handle: RePEc:bla:finrev:v:44:y:2009:i:4:p:525-539

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    Web page: http://www.easternfinance.org/
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    Web: http://www.blackwellpublishing.com/subs.asp?ref=0732-8516

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    Cited by:
    1. Crutchley, Claire E. & Minnick, Kristina, 2012. "Cash versus incentive compensation: Lawsuits and director pay," Journal of Business Research, Elsevier, vol. 65(7), pages 907-913.

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