CEO equity compensation and earnings management: The role of growth opportunities

Li, Leon; Kuo, Chii-Shyan

doi:10.1016/j.frl.2016.10.013

Cited by 35 publications

(29 citation statements)

References 16 publications

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“…A low book to market value, as well as, high sales growth is indicative future growth opportunities (Danbolt et al, 2016;Li and Kuo, 2017). Further, younger firms generally have newer technologies, innovative products, contemporary business models, modern assets, and less rigid organisational structures and hence, greater opportunities for growth when compared to their older counterparts (Danbolt et al, 2016).…”

Section: Data and Variablesmentioning

confidence: 99%

“…Organisational performance may be influenced by many forms of internal capabilities including organisational slack (Wiersma, 2017), borrowing capacity (Vo, 2018), liquidity (Yang et al, 2017;French and Taborda, 2018), capital structure (Le and Phan, 2017;Detthamrong et al, 2017) and growth opportunities (Agyei-Boapeah et al, 2018;Li and Kuo, 2017). However, the ultimate impact of firms'…”

Section: Introductionmentioning

confidence: 99%

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Internal capabilities, national governance and performance in African firms

Tunyi

Agyei‐Boapeah

Areneke

et al. 2019

Research in International Business and Finance

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We explore the relations between firms' internal capabilities, national governance quality (NGQ) and performance in the African context using a dataset comprised of 11,183 firm-year observations (1,490 unique firms from 15 African countries over a 17-year period). Our study offers new insights into how interlinkages between firms' internal and external environment, shape corporate success. Specifically, we find that (1) firms' internal capabilities (captured by financial resource-availability and growth prospects) are critical enablers of performance in both weak and strong institutional environments, (2) individual firms perform well in environments where their peers performs well, (3) NGQ directly enhances aggregate firm performance, and in tandem, the performance of individual firms, and (4) NGQ moderates the capability-performance nexus, by enhancing the translation of growth opportunities into profitability. The results highlight the critical role of firm-level financial resource availability and growth prospects in shaping corporate success in this challenging institutional environment.

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Section: Data and Variablesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Internal capabilities, national governance and performance in African firms

Tunyi

Agyei‐Boapeah

Areneke

et al. 2019

Research in International Business and Finance

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“…Therefore, CEO compensation may be higher in those firms which have higher growth opportunities (Core et al, 2003). Consistent with prior research, we use the price-to-book ratio as a proxy for capturing growth opportunity (Li and Kuo, 2017).…”

Section: Control Variablesmentioning

confidence: 94%

Relationship between gray directors and executive compensation in Indian firms

Prasad

Sankaran

Prabhu

2019

EJMBE

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Purpose The purpose of this paper is to examine the empirical relationship between gray directors (non-executive non-independent directors) and executive compensation among companies listed in India’s National Stock Exchange (NSE). The paper also examines the possible interplay of relationships between controlling shareholder duality (controlling shareholder being the CEO), ownership category and executive compensation. Design/methodology/approach A sample of 438 firms listed in the NSE of India was studied using data spanning five financial years, 2012–2013 to 2016–2017. Findings Empirical evidence suggests that there is a positive association between the proportion of gray directors on the board and executive compensation. The sensitivity of executive compensation to gray directors is found to be higher among family controlled firms. This research has also found that CEOs who belong to controlling shareholder groups received higher pay than professional CEOs. The authors conjecture that these results suggest cronyism and may contribute to lower levels of corporate governance practices in the country. Research limitations/implications The hybrid board structure, which India has adopted with the desire to bring the best of Anglo Saxon and Japanese board philosophies, has paradoxically led to self-serving boards. Exploration of alternative thinking to bring about changes in the regulatory framework is, therefore, necessary. Originality/value Serious problems are identified with the philosophy behind board composition mandated by Listing Requirements for Indian firms with empirical evidence showing how the existing rules generate cronyism and unfairness to minority shareholders.

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“…Numerous studies have shown how the discretion granted to managers in drafting the balance sheet can be used by them in an opportunistic way (Burgstahler & Dichev, 1997;Burgstahler & Eames, 2006). The interests that can push managers to alter the disclosure of financial statements are different and include the following reasons: to increase the level of income (pay for performance) to obtain bonuses linked to the company's income performance (Healy, 1985;Guidry et al, 1999;Detzen & Zulch, 2012;Li & Kuo, 2017;Guthrie et al, 2017); to implement income smoothing policies (Gaver et al, 1995;Bhattacharya et al, 2003;Das et al, 2013;Khurana et al, 2017); to favour the overcoming of a fixed income target (the so-called threshold mentality) for the enhancement of the corporate image and the avoidance of negative repercussions in the behaviour of the stakeholders (Degeorge et al, 1999;Mindak, 2016;Bonacchi et al, 2017); and to proceed with policies called "big baths", typically found when new accounting standards are adopted (Jordan & Clark, 2003;Bens & Heltzer, 2005;Lapointe et al, 2008) or when there is a turnover in management (Nieken & Sliwka, 2015). Therefore, the moral issue related to EM is important: for Elias (2002), the contrasting opinions on EM stem from the combination of business ethics, moral philosophies and social responsibility.…”

Section: The Discretionary Nature Of the Financial Statements: Agencymentioning

confidence: 99%

The “Quantitative Discretion Index”: A New Business Ethics Tool to Prevent Opportunistic Earnings Management Practices

Montani¹,

Perrini²,

Gervasio³

et al. 2020

JMS

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In this article, we build a Quantitative Discretion Index (hereafter referred to as QDI) to identify within the financial statements the most vulnerable areas related to possible opportunistic earnings management (hereafter referred to as EM) practices, with the aim of supporting ethical behaviour in corporate social communications. In order to better explain the QDI construction method, a practical example is implemented, starting from an analysis of the consolidated balance sheet of an Italian listed company operating in the media sector (in 2016). The QDI might be added to the contents of voluntary information provided by companies that pay attention to ethical behaviour and corporate social responsibility. Within each corporate balance sheet, the QDI allows stakeholders to identify the evaluation discretion areas, where any possible EM practices may be more likely and on which it may be more useful for stakeholders to focus their research attention. Business ethics aims to mitigate EM practices in social communications, including voluntary communication. Indeed, the discretional nature of the assessment of financial statements items by the administrative body represents one of the main weaknesses in the activity of mitigating earnings management practices. At present, the literature has dealt with the relations between ethical behaviour and EM; however, the research should also provide tools that can identify and neutralise the possibilities that opportunistic EM practices can be implemented, thus resulting in more ethical business practices.

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CEO equity compensation and earnings management: The role of growth opportunities

Cited by 35 publications

References 16 publications

Internal capabilities, national governance and performance in African firms

Internal capabilities, national governance and performance in African firms

Relationship between gray directors and executive compensation in Indian firms

The “Quantitative Discretion Index”: A New Business Ethics Tool to Prevent Opportunistic Earnings Management Practices

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