This paper make four important contributions to the accounting literature. First, it shows that discretionary accruals are associated with CEO cash compensation, but that the coefficient is significantly less than that on nondiscretionary accruals. Second, a differential reaction is found to...

Managers in their terminal years have an incentive to manipulate earnings to enhance earnings based bonuses. We examine this horizon problem by considering the role of the compensation committee in setting terminal-year compensation. We predict that compensation committees are aware of the...

The incentive effect of CEO portfolio delta (i.e., the sensitivity of CEO wealth to changes in stock price) on financial misreporting is inconclusive given a complex reward-risk tradeoff faced by CEOs (e.g., a positive “reward effect” versus a negative “risk effect”). We propose that the...

We examine the economic consequences of the recent adoption of SFAS 123(R) in the United States. Consistent with the conjectures of prior research, our results show that the removal of favorable accounting treatment for stock options post SFAS 123(R) results in a switch from stock options to...

Existing research documents that firms employing relatively high levels of stock option-based compensation more frequently report quarterly earnings that meet or exceed analysts' forecasts. This paper examines the roles of income-increasing accounting choices and management guidance to analysts...

We examine the relationship between equity incentives and earnings management in the banking industry. By focusing on this regulated industry and using industry-specific earnings management proxies, we provide evidence on the impact of regulation on earnings management arising from CEOs' equity...

We study an extension of a two-period inventory management problem with positively correlated demands in which the manager's compensation is partially based on an external, market-based assessment of the firm's value. As typically the "real'' demand is only observed internally in the firm, the...

Equity-based compensation causes increases in firms' share count and dilutes Earnings Per Share (EPS), which provides firms with an incentive to raise EPS using either share buybacks or earnings management. We employ a regression discontinuity framework to provide evidence of a causal link...

This study examines the sensitivity of CEO compensation to fair value gains and losses in derivatives for firms in the U.S. oil and gas industry. Our evidence indicates that firms use derivatives for both hedging and non-hedging purposes and that the derivative gains have a substantial impact on...

Financial misrepresentation has usually been analysed by large-scale empirical research. However the generality gained from such an approach is at the cost of understanding the rich and complex nature of financial misrepresentation in real organizations. We adopt a case study approach to gain...