The impact of performance-based compensation on misreporting

Burns, Natasha; Kedia, Simi

doi:10.1016/j.jfineco.2004.12.003

Cited by 1,041 publications

(616 citation statements)

References 28 publications

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“…Like earlier studies, most recent work in this area treats compensation contracts as exogenous and looks for a positive relationship between executives' equity incentives and earnings management (Larcker, Richardson, and Tuna, 2007;Cheng and Warfield, 2005), the frequency of accounting restatements (Harris and Bromiley, 2007;Burns and Kedia, 2006;Efendi, Srivastava, and Swanson, 2007;Armstrong, Jagolinzer, and Larcker, 2010a), or SEC Accounting and Auditing Enforcement Releases (Erickson, Hanlon, and Maydew, 2006;Johnson, Ryan, and, Tian, 2009). Most studies adopt a "rent extraction" perspective and interpret a positive relationship between equity incentives and accounting manipulation as a symptom of "bad" governance and misaligned managerial incentives.…”

Section: Equity Incentives and Earnings Managementmentioning

confidence: 99%

The role of information and financial reporting in corporate governance and debt contracting

Armstrong

Guay

Weber³

2010

Journal of Accounting and Economics

1,091

350

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Abstract:We review recent literature on the role of financial reporting transparency in reducing governance-related agency conflicts among managers, directors, and shareholders, as well as in reducing agency conflicts between shareholders and creditors, and offer researchers some suggested avenues for future research. Key themes include the endogenous nature of debt contracts and governance mechanisms with respect to information asymmetry between contracting parties, the heterogeneous nature of the informational demands of contracting parties, and the heterogeneous nature of the resulting governance and debt contracts. We also emphasize the role of a commitment to financial reporting transparency in facilitating informal multi-period contracts among managers, directors, shareholders, and creditors.Keywords: financial accounting; corporate governance; board structure; contracting; executive compensation; debt contracts; informal contracts We thank the following for helpful comments and suggestions:

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Section: Equity Incentives and Earnings Managementmentioning

confidence: 99%

The role of information and financial reporting in corporate governance and debt contracting

Armstrong

Guay

Weber³

2010

Journal of Accounting and Economics

1,091

350

View full text Add to dashboard Cite

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“…Burns and Kedia (2005) investigate earning restatements of 215 firms compared with a control sample of firms matched by industry and size.…”

Section: Introductionmentioning

confidence: 99%

High-powered incentives and fraudulent behavior: Stock-based versus stock option-based compensation

Andergassen

2008

Economics Letters

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Abstract.In this paper shareholders face the trade-off between providing managers with incentives to exert beneficial effort and to engage in costly fraudulent activity. We solve for the optimal compensation package, given that shareholders can either grant (restricted) stock or stock options and given fixed average compensation costs. We show that if the negative effect of fraud on the company's value is sufficiently large then stock based compensation is optimal. Otherwise, stock option based compensation is optimal. Furthermore, we show that the fraud to effort ratio is increasing in the strike price and that the optimal strike price is decreasing in the size of the negative effects of fraud on the company's value.

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“…Regarding the structure of managerial compensation, CEO's stock options appear to be the sole piece of his compensation package related to misreporting (Burns and Kedia 2006;Efendi, Srivastava, and Swanson 2007). Erickson, Hanlon, and Maydew (2006) fi nd no relationship between executive compensation and misreporting, but this may in part be due to their small sample (50 observations) because they restrict attention to violations rising to the level of criminal fraud.…”

Section: Empirical Studies Of Misreportingmentioning

confidence: 96%