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The asymmetric relationship between executive earnings management and compensation: a panel threshold regression approach

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  • Leon Li
  • Mark J. Holmes
  • Bong Soo Lee

Abstract

Prior research shows that chief executive officers (CEOs) are rewarded for their earnings management. We re-examine this issue using a panel threshold regression approach, which allows the effect of earnings management on the CEO compensation to change across the level of earnings management and CEO compensation. Our results show that the effect of CEOs’ discretionary accounting choices on their compensation is not homogeneous across various degrees of earnings management and compensation. In particular, for firms with moderate (inordinate) levels of earnings management and CEO compensation, earnings management is rewarded (penalized).

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  • Leon Li & Mark J. Holmes & Bong Soo Lee, 2016. "The asymmetric relationship between executive earnings management and compensation: a panel threshold regression approach," Applied Economics, Taylor & Francis Journals, vol. 48(57), pages 5525-5545, December.
  • Handle: RePEc:taf:applec:v:48:y:2016:i:57:p:5525-5545
    DOI: 10.1080/00036846.2016.1181707
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