Impact of product market competition on real activity manipulation: Moderating role of managerial ability

Abstract

In this study, we examine whether managerial ability moderates the association between product market competition and real earnings management. Prior literature largely supports the disciplinary effect of competition, suggesting that competition reduces real activity manipulation. We argue that this association is different depending on the level of managerial ability. Based on the reputation hypothesis, we argue that able managers negatively moderate the association between competition and real activity manipulation. Using a sample of US listed companies from 1997 to 2016, we find evidence to support our moderating assertion. A battery of robustness tests validates our original findings.

R&D expenditures and CEO compensation policy: The effect of corporate control and market competition on managerial opportunism

“…Industry competition is significant variable affecting the boards' compensation decisions and CEO turnover. Researchers have shown that firm performance is influenced by market structure, and changes in other structural factors such as market competition, growth, and barriers to professional mobility (e.g., Biswas et al, 2022; Jung & Yoo, 2022; Shi et al, 2018; Short et al, 2007). Clearly, the intensity of market competition affects a company's profitability and CEO performance, which, in turn, determines a CEO's compensation and job security.…”