IDEAS home Printed from https://ideas.repec.org/p/tsa/wpaper/0187acc.html
   My bibliography  Save this paper

Troubled Asset Relief Program’s Impact on Earnings informativeness: A Study of Compensation Contracts

Author

Listed:
  • Carlos Jimenez
  • Jay Vega
  • Jennifer Yin

    () (UTSA)

Abstract

In late 2008, Congress signed the Emergency Economic Stabilization ACT (EESA) into law in order to help bring financial stability into the U.S. economy. The Troubled Asset Relief Program (TARP), which was a part of EESA, was developed specifically to deal with the uncertainty in the U.S. financial institutions. TARP required firms to adhere to specific compensation requirements or face direct costs. We examine if the compensation restrictions that TARP placed on compensation affected the weight investors attach to firms’ earnings. We find that firms that pay their CEOs above the TARP threshold show higher earnings informativeness. We also find that firms that decrease total compensation during their participation in TARP produce more informative earnings, relative to firms that do not decrease total compensation. Separating total compensation into its cash and performance-based components, we find that firms have higher earnings informativeness when they increase (decrease) cash (performance) compensation during TARP. However, earnings informativeness decreases as a whole during and after TARP relative to pre-TARP earnings informativeness. Lastly, we find that firms that pay their CEOs above the threshold set by the U.S. Treasury show higher performance based on accounting measures during their participation in TARP. Length: 40 pages

Suggested Citation

  • Carlos Jimenez & Jay Vega & Jennifer Yin, 2015. "Troubled Asset Relief Program’s Impact on Earnings informativeness: A Study of Compensation Contracts," Working Papers 0187acc, College of Business, University of Texas at San Antonio.
  • Handle: RePEc:tsa:wpaper:0187acc
    as

    Download full text from publisher

    File URL: http://interim.business.utsa.edu/wps/acc/0009ACC-428-2015.pdf
    File Function: Full text
    Download Restriction: no

    References listed on IDEAS

    as
    1. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    2. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    3. Balsam, Steven & Haw, In-Mu & Lilien, Steven B., 1995. "Mandated accounting changes and managerial discretion," Journal of Accounting and Economics, Elsevier, vol. 20(1), pages 3-29, July.
    4. Bebchuk, Lucian Arye & Fried, Jesse M. & Walker, David I., 2001. "Executive Compensation in America: Optimal Contracting or Extraction of Rents?," Berkeley Olin Program in Law & Economics, Working Paper Series qt1x24r7st, Berkeley Olin Program in Law & Economics.
    5. Wu, Xueping & Yao, Jun, 2012. "Understanding the rise and decline of the Japanese main bank system: The changing effects of bank rent extraction," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 36-50.
    6. Ball, R & Brown, P, 1968. "Empirical Evaluation Of Accounting Income Numbers," Journal of Accounting Research, Wiley Blackwell, vol. 6(2), pages 159-178.
    7. Collins, Daniel W. & Kothari, S. P., 1989. "An analysis of intertemporal and cross-sectional determinants of earnings response coefficients," Journal of Accounting and Economics, Elsevier, vol. 11(2-3), pages 143-181, July.
    8. Bebchuk, Lucian Arye & Fried, Jesse & Walker, David I, 2001. "Executive Compensation in America: Optimal Contracting or Extraction of Rents," CEPR Discussion Papers 3112, C.E.P.R. Discussion Papers.
    9. Lewellen, Wilbur & Loderer, Claudio & Martin, Kenneth, 1987. "Executive compensation and executive incentive problems : An empirical analysis," Journal of Accounting and Economics, Elsevier, vol. 9(3), pages 287-310, December.
    10. Abarbanell, Jeffery S. & Lanen, William N. & Verrecchia, Robert E., 1995. "Analysts' forecasts as proxies for investor beliefs in empirical research," Journal of Accounting and Economics, Elsevier, vol. 20(1), pages 31-60, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    compensation contracts;

    JEL classification:

    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tsa:wpaper:0187acc. 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: (Wendy Frost). General contact details of provider: http://edirc.repec.org/data/cbutsus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.