Executive equity compensation and earnings management: A quantile regression approach

• Main Authors: CHEN, Chih-Ying, LI, Ming Yuan
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: Accounting; Corporate Finance; Human Resources Management
• Online Access: https://ink.library.smu.edu.sg/soa_research/989; http://aaahq.org/AM2012/abstract.cfm?submissionID=118
• Institution: Singapore Management University

Prior research has investigated the association between chief executive officer (CEO) equity compensation and earnings management but the evidence is not conclusive. Our empirical results show that CEO equity compensation is positively associated with discretionary accruals at the high quantiles of discretionary accruals, but the coefficient on equity compensation decreases monotonically as the quantile lowers, and is significantly negative at the low quantiles of discretionary accruals. The results are robust to alternative measures of CEO equity incentives and earnings management and alternative model specifications. Overall, the quantile regression results suggest that equity compensation motivates income-increasing earnings management when discretionary accruals are at the high tail of the distribution. Conversely, equity compensation mitigates income-increasing earnings management at the low tail of the distribution of discretionary accruals.