Are more able CEOs getting more compensated? Evidence from the pay-for-performance sensitivity of equity-based incentives

Gan, Huiqi; Park, Myung Seok

doi:10.1016/j.adiac.2016.07.008

Cited by 12 publications

(15 citation statements)

References 45 publications

(114 reference statements)

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“…discretionary accruals (DA) and real earnings management (REM) as a measure of financial reporting quality. Gan and Park (2016) find that more able managers are creating a marginal cash value, consistent with the evidence that able managers are making better use of cash and can marginally induce higher value for one dollar of cash for shareholders and this effect is more pronounced for financially constrained firms. Since clawbacks are meant to align the interest of shareholders and management by reducing agency costs, I would expect clawback to play an intervening role on the overall level of EM, especially with the presence of able managers.…”

Section: The Association Between Managerial Ability and Earnings Manasupporting

confidence: 81%

“…According to Demerjian et al (2012), managerial ability is a measure of the CEO's ability to drive the firm's efficiency upward due to his/her talent and expertise about the industry as well as the firm. It is likely that managerial ability itself correlates with many efficiency measures related to firm performance (Gan and Park, 2016); therefore, to mitigate potential endogeneity and reverse causality, I utilise the change variables of managerial ability scores. I also use the change in the ranking of managerial ability.…”

Section: The Association Between the Changes In Managerial Ability Anmentioning

confidence: 99%

“…Strong clawback provisions are likely to incentivise managers to enhance the financial report quality while weak clawback does not necessarily cause a change in managerial incentives to work for the best interests of shareholders (Erkens et al, 2018). Able managers can self-select the incentives-based compensations that suit their abilities (Gan and Park, 2016). Likewise, higher ability managers are recruited and hence rewarded for their reputation and abilities through performance-based compensations (Milbourn, 2003).…”

Section: The Association Between Managerial Ability and Targets Of CLmentioning

confidence: 99%

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The unintended consequences of voluntary adoption of clawback provisions on managerial ability

Mahdy

2019

Accounting & Finance

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I investigate the impact of the voluntary adoption of clawback provisions on managerial ability and predict that clawback provisions will motivate managers to exert more efforts following the adoption of clawback and these efforts will be in the form of an increased managerial efficiency. Using a propensity score matched sample of firms, I find a significant positive association between voluntary clawback adoption and the change in both rank and score of managerial ability. My study highlights the unintended consequences of clawback provisions on CEO's behavior and contributes to the on‐going debate on the importance of proactively and carefully drafting clawback policies, further signifying the importance of the SEC's efforts (Rule 10D‐1) to enforce clawback policies.

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Section: The Association Between Managerial Ability and Earnings Manasupporting

confidence: 81%

Section: The Association Between the Changes In Managerial Ability Anmentioning

confidence: 99%

Section: The Association Between Managerial Ability and Targets Of CLmentioning

confidence: 99%

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The unintended consequences of voluntary adoption of clawback provisions on managerial ability

Mahdy

2019

Accounting & Finance

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“…However, analytical studies (e.g., Rosen, 1981;Gabaix and Landier, 2008), consistent with human capital theory (e.g., Becker, 1964) and upper echelons theory (Hambrick and Mason, 1984), support the notion that managers can play a significant role in shaping corporate outcomes. A growing body of empirical studies examine the impact of managerial ability on corporate decisions and outcomes, such as investment efficiency (e.g., Habib and Hasan, 2017), credit rating (Cornaggia et al, 2017), tax avoidance (e., Park et al, 2015), executive compensation (Gan and Park, 2016), and firm performance (e.g., Chang et al 2010). Accounting and financial scholars endeavor to explain why and how managers affect accounting choices.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

Managerial ability, earnings quality and ISIS: evidence from Iraq

Bazrafshan

Makarem

Hesarzadeh

et al. 2021

IJOEM

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PurposeThis study investigates the association between managerial ability and earnings quality in firms listed on the Iraq Stock Exchange and how the emergence of the Islamic State of Iraq and Syria (ISIS) influences the association.Design/methodology/approachThis study uses a sample of firms listed on the Iraq Stock Exchange over the period 2012–2018. Managerial ability is quantified using data envelopment analysis, and earnings quality is measured by earnings restatement, earnings persistence, accruals quality and earnings response coefficient. Panel regression analysis is used to examine the research hypotheses.FindingsThe findings indicate that managerial ability positively affects earnings quality of Iraqi firms and that ISIS weakens the relationship between managerial ability and earnings quality. These findings are robust to the alternative measures of managerial ability, as well as to various approaches used to address endogeneity including propensity-score matching and a difference-in-differences analysis.Originality/valueThis study provides insight into the impact of managerial ability on earnings quality in an under-studied emerging market. Furthermore, this study broadens the existing literature about the financial consequences of a modern terrorist group, ISIS.

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“…Accurate predictions of customer demand and industrial competition are necessary for decision process that determines a firm's success, yet the importance of coordination is relatively negligible. In contrast, coordination task effort immediately contributes to a firm's stock value [17,33]. For example, SINOPEC took initiative to disclose its severe misjudgment of the crude oil futures market, decisively coped with public trust crisis, thereby reversing the stock price declining.…”

mentioning

confidence: 99%

Equity-based incentive to coordinate shareholder-manager interests under information asymmetry

Zhou

Yao

Zhou

et al. 2022

JIMO

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<p style='text-indent:20px;'>The shareholder's interest oriented from business operation relies on opportunism regulation of the manager under asymmetry. Effective motivation incentives should be exploited to facilitate the manager's effort devotion enthusiasms. This paper establishes a theoretic model in which the shareholder offers equity-based incentive to a fairness-preferred manager to coordinate their interest conflicts and maximize her expected revenue. The manager exerts unverifiable levels of efforts toward both decision and coordination tasks making the most of his private information about fairness preference. Two interrelated performance measures on different hierarchical levels are considered for contracting purposes. In each situation, we derive the equilibrium effort choices and incentive coefficients of both participants, and investigate how these decisions are affected by fairness preference. Research findings suggest that the incorporation of firm equity dominates pure profit incentive in eliciting high effort levels toward two distinctive managerial tasks. Besides, the equity-based incentive weakens the perceived unfairness and facilitates the participants' expected revenue. Comparative statics and numerical analysis are conducted to demonstrate our results and the effectiveness of the proposed equity-based incentive. Finally, we summarize the contributions of this paper and put forward directions for further study.</p>

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Are more able CEOs getting more compensated? Evidence from the pay-for-performance sensitivity of equity-based incentives

Cited by 12 publications

References 45 publications

The unintended consequences of voluntary adoption of clawback provisions on managerial ability

The unintended consequences of voluntary adoption of clawback provisions on managerial ability

Managerial ability, earnings quality and ISIS: evidence from Iraq

Equity-based incentive to coordinate shareholder-manager interests under information asymmetry

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