Discussion—Stock Option Compensation and Earnings Management Incentives

Gaver, Jennifer J.

doi:10.1177/0148558x0301800409

Cited by 6 publications

(11 citation statements)

References 26 publications

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“…Most of these accounting scandals occurred because the firms were manipulating earnings and reporting poor-quality financial information. Some empirical studies provide evidence that the quality of financial reporting worsens when CEOs receive more incentives (Baker et al, 2003;Meek et al, 2007). CEO incentives play an important role in the financial reporting quality of organizations-borne out by the recent corporate accounting scandal at Barclays Bank-because they depend on high organizational performance, leading to a tendency toward opportunistic earnings manipulation to produce better results.…”

Section: Introductionmentioning

confidence: 99%

Do CEO Incentives Mediate the Relationship between Political Influences and Financial Reporting Quality?

Sadiq

Mohamad

Kwong

2019

International Journal of Asian Social Science

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Political influences CEO incentives Financial reporting quality Real earnings management Pakistan The purpose of this study is to examine whether CEO incentives mediate the relationship between political influences and financial reporting quality. This study particularly examines whether CEO incentives are the underlying mechanism through which politically influenced firms affect the incentives of those executives involved in preparing financial statements. In this study, politically influenced firms are identified as those in which politicians or their close relatives, and former or current civil/military bureaucrats are present on the board or in senior management. A sample of non-financial firms listed on the Pakistan Stock Exchange between 2009 and 2015 was taken. The results, which were tested for robustness, revealed that CEO incentives and political influences have a moderating effect on financial reporting quality. This study contributes to the field of corporate governance, integrating the agency and political economy theories, and provides policymakers insight into improving corporate governance in transitional economies. Further, this study contributes to the existing literature by including a new type of political connection, through civil/military bureaucrats. Contribution/Originality: This study makes two contributions to the existing literature. First, it examines the mediating effect of CEO incentives on the relationship between political influences and financial reporting quality in Pakistan. Second, it introduces a new type of political connection, that of civil/military bureaucrats.

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Section: Introductionmentioning

confidence: 99%

Do CEO Incentives Mediate the Relationship between Political Influences and Financial Reporting Quality?

Sadiq

Mohamad

Kwong

2019

International Journal of Asian Social Science

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“…The maintained assumption in the literature is that managerial discretionary powers are only important if there is a degree of information asymmetry between investors and the managers who are privy to informational advantage over market participants (Hand, 1989;Gaver, 2003) 6 . Gamble et al (2008) assert that creditors are more interested in the disclosure of stock options than in the accounting issues relating to the compensation package.…”

Section: Executive Stock Option Plan and Corporate Disclosurementioning

confidence: 99%

“…Gamble et al (2008) assert that creditors are more interested in the disclosure of stock options than in the accounting issues relating to the compensation package. Gaver (2003) wonders if earning management 'is the least cost method of manipulating stock price'. However, earnings management continues to be a prominent route adopted by managers to influence the financial reporting process, largely opportunistically.…”

Section: Executive Stock Option Plan and Corporate Disclosurementioning

confidence: 99%

“…Concerns about executive stock options vis-à-vis earnings management is further justified by the fact that the frequency of 'financial misreporting' increases with the prevalence and pervasiveness of the use of executive stock option plan (Gaver, 2003). Supporting Gaver's claim statistically, Bebchuk and Bar-Grill (2002) report that "the number of earnings restatements by publicly traded firms averaged 49 per year from 1990year from to 1997year from , increased to 91 in 1998year from , 150 in 1999year from , and 156 in 2000year from " (c.f.…”

Section: Earnings Management and Executive Stock Option Payoffsmentioning

confidence: 99%

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Executive stock options and firm valuation: a literature review and research framework

Akindayomi¹

2010

IJBEX

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The wave of globalisation and its impact on business excellence is real. The importance of motivational compensation packages at achieving improved corporate performance/business excellence cannot be overemphasised. Executive stock options have been widely used to remunerate top executives of companies in this regard. The purposes of this study are to summarise and review the compensation literature on executive stock options plan relating it to firm valuation, with special emphasis on accounting numbers; synthesise and develop a framework that explains existing relationships in the extant literature connecting executive stock options and firm value and suggesting future research directions in this area of research. This study examined these in the context of compensation theories, corporate governance, earnings management as well as potential for corporate volatility and corporate failure.

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“…One possible limitation of the prior grant / accruals research is that the design focused solely on accrual behavior before the grant date. However, Gaver (2003) argues that a strategy to defer earnings leading up to a grant date should also manifest itself in systematically income-increasing accruals afterward, analogous to the "bad news"/"good news" timing strategy involving voluntary disclosures posited by Aboody and Kasznik 2000. To address this issue, we conduct a validity test by adding the one-quarter lag of EVENT to the multivariate model.…”

Section: Accrual Reversalsmentioning

confidence: 99%