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IFRS and the Use of Accounting-Based Performance Measures in Executive Pay

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  • Voulgaris, Georgios
  • Stathopoulos, Konstantinos
  • Walker, Martin

Abstract

We examine the effect of IFRS (International Financial Reporting Standards) on the type of performance measures firms use to evaluate and reward their managers. We show that post-IFRS firms decrease the weight of Earnings-per-Share (EPS)-based performance measures in CEO pay contracts. We argue that IFRS add “noise” to accounting numbers which, based on optimal contracting theory, makes reported earnings less useful for evaluating managerial performance. Our findings suggest that while under IFRS accounting earnings could be more informative for valuation purposes, this might be achieved at the expense of other purposes that accounting serves, i.e., stewardship/performance contracting.

Suggested Citation

  • Voulgaris, Georgios & Stathopoulos, Konstantinos & Walker, Martin, 2014. "IFRS and the Use of Accounting-Based Performance Measures in Executive Pay," The International Journal of Accounting, Elsevier, vol. 49(4), pages 479-514.
    • Handle: RePEc:eee:accoun:v:49:y:2014:i:4:p:479-514
    DOI: 10.1016/j.intacc.2014.10.001
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    Cited by:

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    4. Wei‐Kang Wang & Wen‐Min Lu & Qian Long Kweh & Wun‐Ya Siao, 2020. "Related‐party transactions and corporate performance following the adoption of International Financial Reporting Standards in Taiwan," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(3), pages 371-379, April.
    5. Joanna Shuang Wu & Ivy Xiying Zhang, 2019. "Mandatory IFRS Adoption and the Role of Accounting Earnings in CEO Turnover," Contemporary Accounting Research, John Wiley & Sons, vol. 36(1), pages 168-197, March.
    6. Emmanuel T. De George & Xi Li & Lakshmanan Shivakumar, 2016. "A review of the IFRS adoption literature," Review of Accounting Studies, Springer, vol. 21(3), pages 898-1004, September.
    7. Masahiro Enomoto, 2018. "Cross-Country Research on Earnings Quality: A Literature Review and Future Opportunities," Discussion Paper Series DP2018-06, Research Institute for Economics & Business Administration, Kobe University, revised Oct 2020.
    8. DeFond, Mark & Hu, Jinshuai & Hung, Mingyi & Li, Siqi, 2020. "The effect of fair value accounting on the performance evaluation role of earnings," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    9. Aust, Viktoria & Pelger, Christoph & Drefahl, Christian, 2021. "Exploring the relationship between valuation and stewardship uses of accounting information: Empirical evidence from German listed firms," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 42(C).
    10. Chen, Yuyang & Wang, Xinlu & Chen, Kun, 2023. "Stock market liberalization and pay for market-based performance: Evidence from a quasi-natural experiment in China," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Optimal Contracting; IFRS; Performance measures; Executive pay; Fair value accounting;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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