Rev. Pac. Basin Finan. Mark. Pol. 2015.18. Downloaded from www.worldscientific.com by FLINDERS UNIVERSITY LIBRARY on 10/12/15. For personal use only.earnings quality and idiosyncratic volatility: Hence, the lower the earnings quality, the greater the idiosyncratic volatility, and the higher the value of stock options. This study investigates whether there is a link between CEO equity compensation and earnings quality. Using a simultaneous system of equations, we find negative correlations between the two, suggesting that managers have incentives to reduce earnings quality.