The association between non-financial performance measures in executive compensation contracts and earnings management

Ibrahim, Salma; Lloyd, Cynthia B.

doi:10.1016/j.jaccpubpol.2010.10.003

Cited by 75 publications

(65 citation statements)

References 45 publications

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“…The results of this survey are consistent with findings of Sohn (2011), Ibrahim andLloyd (2011), Srinidhi and Gul (2007), Kothari et al (2005), Pauwels et al (2004), Stein (1989). Based on the results of this survey, we believe it would be necessary to disclose details of audit fees paid to all audit Institutions.…”

Section: Resultssupporting

confidence: 88%

The effect of real earnings management on audit fees in listed companies in Tehran Stock Exchange

Ghanbari¹,

Askarian²,

Matinfar³

2014

10.5267/j.msl

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This paper presents an empirical investigation to study the effect of real earnings management on audit fees in selected firms from Tehran Stock Exchange. The study gathers the necessary information from selected stocks listed in Tehran Stock Exchange. The proposed study uses the information of 63 firms over a four-year period from 2009 to 2012, which leaves us to have 252 data. Using some regression study, The study has confirmed real earnings management influences positively on audit fees in general. In addition, while real earnings management through an increase in sales does not influence on audit fees, the survey has concluded that real earnings management through increase in production costs as well as decrease in discretionary expenditures influences positively on audit fees.

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Section: Resultssupporting

confidence: 88%

The effect of real earnings management on audit fees in listed companies in Tehran Stock Exchange

Ghanbari¹,

Askarian²,

Matinfar³

2014

10.5267/j.msl

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“…Second, long-term pay is usually tied to financial performance measures only (Ibrahim & Lloyd, 2011 Overall, it is unlikely that our regressions have multicollinearity issues. Table 4 also shows that the coefficient on Monitoring is insignificant and large firms are more likely to adopt nonfinancial measures (coefficient of Firm Size is 0.47, significant at the 1% level).…”

Section: Methodsmentioning

confidence: 98%

“…Prior to 2013, many firms chose to report cash‐related compensation rather than a single total figure, and data on long‐term incentive pay were not always quantified in the reports. Second, long‐term pay is usually tied to financial performance measures only (Ibrahim & Lloyd, ).…”

Section: Data and Research Methodologymentioning

confidence: 99%

“…Nonfinancial measures are more forward-looking than financial measures (Banker, Potter, & Srinivasan, 2000;Ittner & Larcker, 1998;Said et al, 2003). Nonfinancial measures also discourage earnings manipulation (HassabElnaby, Mohamed, & Said, 2010;Ibrahim & Lloyd, 2011). They provide for better managerial incentives, especially for firms with high growth rates or firms with noisy financial measures (Bushman et al, 1996).…”

Section: Pay-performance Sensitivity and Nonfinancial Performance Mmentioning

confidence: 99%

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The use of nonfinancial performance measures in CEO bonus compensation

Cho

Ibrahim

Yan

2019

Corporate Governance

Self Cite

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Research Question/Issue In this study, we explore the relationship between the use of nonfinancial performance measures in Chief Executive Officer (CEO) bonus plans and CEO power, moderated by compensation committee monitoring. Furthermore, we investigate whether the inclusion of nonfinancial performance measures is associated with higher CEO bonus pay sensitivity to shareholder returns. Research Findings/Insights Using a sample of FTSE 350 firms during the period 2007–2013, we find that CEO power is significantly negatively related to the propensity of using nonfinancial performance measures. This negative relationship, however, is moderated by higher levels of compensation committee monitoring. We also find that firms combining nonfinancial and financial performance measures in CEO bonus plans tend to have stronger CEO bonus pay sensitivity to shareholder returns than firms using financial measures alone. Thus, our results suggest that boards of directors adopting nonfinancial performance measures are able to better align CEO incentives with shareholder interests. We find similar results when using the weight of nonfinancial performance measures in the bonus plan in our analyses. Theoretical/Academic Implications This study empirically supports the managerial power theory whereby powerful CEOs influence the choice of performance measures in their bonus plans. However, effective compensation committees are found to attenuate the influence of powerful CEOs and to better align their interests with those of shareholders. Our result of stronger bonus pay sensitivity to shareholder returns for firms combining nonfinancial with financial performance measures implies that the informativeness of these measures enhances the firm's ability to tie CEO bonus compensation to shareholder wealth. Practitioner/Policy Implications This study offers insights to members of boards of directors, especially compensation committee members, who are interested in improving the design of executive incentive contracts to better align managerial incentives to shareholder interests. Furthermore, the findings inform regulators about the importance of alternative performance measures in pay‐performance sensitivity and may warrant increased firm disclosure of the details of the pay structure.

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“…For firms considering listing, this impact is exacerbated by asymmetric information between owner-managers and potential outside investors (Toeh et al 1998a;DuCharme, Malatesta and Sefcik 2001). Recent evidence in the earnings management literature has focused on the complex relationships between earnings management and governance (Jaggi, Leung and Gul 2009), debt/diversification (Rodriguez and Hemmen 2010), compensation (Ibrahim and Lloyd 2011) and failure rates (Alhadab, Clacher and Keasey 2015).…”

Section: Introductionmentioning

confidence: 99%

The association between earnings forecast in IPOs prospectuses and earnings management: An empirical analysis

Buchner

Mohamed

Saadouni

2017

Journal of International Financial Markets, Institutions and Mo

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This paper examines the level of earnings management for large IPOs that provide earnings forecasts and those that do not provide forecasts in the IPO prospectus. Using a sample of 368 IPO firms listed on the London Stock Exchange between 1985 and 2012, we find that the level of earnings management is lower for IPOs that provided earnings forecasts, than for those which did not provide a forecast. This evidence is robust, controlling for endogeneity and sample selection. Further tests reveal that IPOs that provide forecasts outperform their counterparts in the long run, using various long term performance measures. Overall, our results suggest that earnings forecasts at the time of listing convey useful information to investors on the quality of the company listing in the market.

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The association between non-financial performance measures in executive compensation contracts and earnings management

Cited by 75 publications

References 45 publications

The effect of real earnings management on audit fees in listed companies in Tehran Stock Exchange

The effect of real earnings management on audit fees in listed companies in Tehran Stock Exchange

The use of nonfinancial performance measures in CEO bonus compensation

The association between earnings forecast in IPOs prospectuses and earnings management: An empirical analysis

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