Factors affecting earnings management: An examination of CEO cash bonus compensation

Ke He (2011). Factors affecting earnings management: An examination of CEO cash bonus compensation , UQ Business School, The University of Queensland.

       
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Ke_He_BCom_Hons_Thesis.pdf Honours Thesis application/pdf 970.70KB 12
Author Ke He
Thesis Title Factors affecting earnings management: An examination of CEO cash bonus compensation
School, Centre or Institute UQ Business School
Institution The University of Queensland
Publication date 2011-10
Supervisor Associate Professor Julie Walker
Dr Michael Turner
Total pages 128
Language eng
Subjects 1501 Accounting, Auditing and Accountability
Abstract/Summary The objective of this study is to investigate the incentives for Chief Executive Officers (CEOs) to engage in earnings management in connection with their cash bonus. The cash bonus element of the CEO remuneration plan is designed to mitigate agency problems by rewarding managers for maximising shareholder wealth. However, this performance-based cash bonus can also give CEOs incentives to manage the reported earnings. This study develops and tests the extent to which earnings management takes place under three conditions: (1) the extent to which the CEOs cash bonus is tied to non-financial performance measures; (2) the extent to which the cash bonus disclosure is of high quality; and (3) the extent to which the cash bonus is tied to subjective measures. Companies listed on the Australian Stock Exchange (ASX) in 2007 form the basis from which the sample was drawn. Earnings management is detected via the modified Jones model. The main findings of the study are that earnings management is lower in the presence of: (1) cash bonuses tied to non-financial performance measures; and (2) high-quality cash bonus disclosure. No support was found for a hypothesised earnings management relationship with the subjective cash bonus. Overall, the results of this study support the proposition that earnings management is related to the structure of the cash bonus element of CEO remuneration. However, managers’ earnings management incentives appear to be moderated by the governance arrangements around executive remuneration, as suggested by the negative association between cash bonus disclosure and earnings management.

 
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Created: Thu, 28 Jun 2012, 14:37:01 EST by Karen Morgan on behalf of UQ Business School