Evidence on factors affecting the relationship between CEO stock option compensation and earnings management
Purpose – The purpose of this paper is to examine the factors affecting the relationships between CEO stock option compensation and earnings management. Design/methodology/approach – Regression of CEO stock option compensation and other factors on measures of discretionary accruals. Findings – A positive relationship between CEO stock option compensation and discretionary accruals was found, implying that earnings management is more likely where stock options are a larger part of CEO compensation. Earnings management is found to be moderated in large firms with stock option compensation and the relationship between stock options and earnings management has intensified in recent years. It was also found that stock options exacerbate earnings management in firms with growth opportunities. Research limitations/implications – Beyond the scope of this paper, these findings raise the following questions: What does the evidence of a size effect mean? Does it reflect information asymmetry, governance, external monitoring, or political risk? Why has the stock option effect on earnings management become more pronounced in recent years? Is it possible to mitigate the negative effects of option compensation on earnings management through the presence of stronger governance structures? Is it possible to mitigate the negative effects of option compensation on earnings management through the presence stronger governance structures? There are implications for compensation policies for corporate executives. Originality/value – This paper extends prior research on the relationship between CEO stock option compensation and earnings management. It provides new insight into the factors affecting this relationship.
Volume (Year): 6 (2007)
Issue (Month): 3 (August)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com |
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://emeraldgrouppublishing.com/products/journals/journals.htm?id=raf Email:
When requesting a correction, please mention this item's handle: RePEc:eme:rafpps:v:6:y:2007:i:3:p:304-323. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Lister)
If references are entirely missing, you can add them using this form.