The Effect of Executive Compensation on Report Lags: An Empirical Evidence

Abstract

The timeliness of financial reporting has been considered as an important factor that contributes to the well-functioning of an economy. This study extends the contemporary research stream by examining determinants of the timeliness of financial reporting process. Specifically, we investigate whether report lag is influenced by (1) the level of executive compensation; (2) the level of stock-based compensation compared to cash-based compensation, and (3) the level of executive compensation above the expected compensation level. We find that firms have shorter report lag when their level of executive compensation is higher. We also document that firms with more stock-based compensation have shorter financial reporting delays. Finally, firms with executive compensation level above the expected executive compensation are more likely to have shorter report lags. Our study underscores the importance of the type and the level of compensation as determinants of firms’ earnings reporting delays.

Corporate Governance Factors and Financial Reporting Timeliness: A Systematic Review and Future Research

“…In addition, the compensation is related to financial reporting timeliness, particularly for the CFO position, due to the CFO's direct control over the financial reporting system. A study conducted in the United States by Laksmana et al (2020) discovered that when receiving high compensation or compensation that exceeds expectations, the CFO will work hard to shorten the financial reporting. In other words, CFOs who receive high compensation-based stock can also reduce reporting delays, which can indirectly reduce agency costs.…”