Equity Incentives and Earnings Management
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- Teacher spread
- 0.241 · how far apart the two teachers sit on this one work
- Validation status
score_only:v0-immature-baseline· verbatim from the scoring run: score_only means the number may rank works, and no category label ships from it
Abstract
This paper examines the link between managers' equity incentives—arising from stock-based compensation and stock ownership—and earnings management. We hypothesize that managers with high equity incentives are more likely to sell shares in the future and this motivates these managers to engage in earnings management to increase the value of the shares to be sold. Using stock-based compensation and stock ownership data over the 1993–2000 time period, we document that managers with high equity incentives sell more shares in subsequent periods. As expected, we find that managers with high equity incentives are more likely to report earnings that meet or just beat analysts' forecasts. We also find that managers with consistently high equity incentives are less likely to report large positive earnings surprises. This finding is consistent with the wealth of these managers being more sensitive to future stock performance, which leads to increased reserving of current earnings to avoid future earnings disappointments. Collectively, our results indicate that equity incentives lead to incentives for earnings management.
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The record
- Venue
- The Accounting Review
- Topic
- Auditing, Earnings Management, Governance
- Field
- Business, Management and Accounting
- Canadian institutions
- University of British Columbia
- Funders
- —
- Keywords
- IncentiveEquity (law)Earnings managementEarningsBusinessRestricted stockEquity riskStock (firearms)Executive compensationEarnings per shareEquity capital marketsFinanceMonetary economicsEconomicsStock marketMicroeconomicsPrivate equity
- Has abstract in OpenAlex
- yes