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Impact of CEOs' pay structures on earnings management in a low-incentive environment: empirical evidence from Sweden

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Listed:
  • Olga Golubeva
  • Rikard Carlström Söderberg
  • Carl Jansson
  • Erik Toris

Abstract

Research literature suggests that the implementation of long-term incentive plans (LTIPs), as opposed to short-term incentive plans (STIPs), can reduce earnings management (EM). Previous studies have considered high-incentive environments where variable pay is a substantial part of the Chief Executive Officer's (CEO) remuneration. This paper investigates the impact of STIPs and LTIPs on EM within a Swedish low-incentive environment where executives' remuneration packages contain a lower degree of variable pay. The study uses the Modified Jones model to estimate discretionary accruals as a proxy for EM and utilises data on CEO pay structure collected from the annual reports of 119 medium- and large-size companies listed on the Nasdaq Stockholm stock exchange. Compared to earlier research, the paper reports a positive relationship between EM and LTIPs and finds a significant difference in variable pay between firms using LTIPs and firms applying only STIPs. The paper offers new evidence that, despite the adoption of LTIPs by firms, a high variable pay can generate stronger incentives for EM.

Suggested Citation

  • Olga Golubeva & Rikard Carlström Söderberg & Carl Jansson & Erik Toris, 2026. "Impact of CEOs' pay structures on earnings management in a low-incentive environment: empirical evidence from Sweden," International Journal of Accounting, Auditing and Performance Evaluation, Inderscience Enterprises Ltd, vol. 22(2), pages 229-248.
    • Handle: RePEc:ids:ijaape:v:22:y:2026:i:2:p:229-248
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