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AuthorAli, Mohamed A. Shabeeb
AuthorIsmael, Hazem Ramadan
AuthorAhmed, Ahmed H.
Available date2022-12-25T11:17:24Z
Publication Date2020
Publication NameCorporate Ownership and Control
Identifierhttp://dx.doi.org/10.22495/cocv17i2art10
CitationAli, M. A., Ismael, H. R., & Ahmed, A. H. (2020). Equity incentives, earnings management and corporate governance: Empirical evidence using UK panel data. Corporate Ownership & Control, 17(2), 104-123.
ISSN1727-9232
URIhttp://hdl.handle.net/10576/37566
AbstractUsing a UK panel data set drawn from 1675 Chief Executive Officer (CEO) year observations and 1540 Chief Financial Officer (CFO) year observations, we examine the relationship between CEO and CFO equity incentives and earnings management. In addition, we examine the moderation effect of corporate governance mechanisms on the relationship between executives’ equity incentives and earnings management. We use multivariate regression models to test our hypotheses. We find that CEO equity incentives are related to higher absolute and income increasing earnings management. These results support the managerial power theory argument that CEOs exploit equity-linked compensation to obtain more personal benefits without causing public anger. Contrary to CEO equity incentives, we could not find any significant relationship between CFO equity incentives and any of the earnings management proxies. In addition, we find that corporate governance quality (measured by individual mechanisms and overall index) has no effect on the relationship between executives’ equity incentives and earnings management. This result indicates that whereas some corporate governance mechanisms can reduce earnings management in general, they do not affect wealth driven incentives to manipulate accruals. In total, results question the effectiveness of the corporate governance system in mitigating opportunistic behavior motivated by executives’ compensation structures.
Languageen
PublisherVirtus Interpress
SubjectDiscretionary Accruals
Executive Compensation
Corporate Governance
Agency Theory
Managerial Power Theory
TitleEquity incentives, earnings management and corporate governance: Empirical evidence using UK panel data
TypeArticle
Pagination104-123
Issue Number2
Volume Number17
ESSN1810-3057
dc.accessType Open Access


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