Search results

From the perspective of top management heterogeneity, this paper aims to study the impact of the psychological traits of executive pay bandwagon on earnings management in the listed companies of China.

This paper applies the ratio of executive pay to the median pay level of executives in firms of similar size and industry, namely, the comparing coefficient, as an alternative variable of executive pay bandwagon, and earnings management as the behavior choice of executive pay bandwagon, to examine whether executives in the listed companies of China have comparing mentality, and whether the result is influenced by executive heterogeneity by using the multiple linear regression models.

The lower the executives’ compensation is than the median pay level of executives in firms of similar size and industry, the stronger the incentive the executives have to compare with others whose pay is higher, increasing the extent of earnings management in the future, and executives tend to use real activities manipulation rather than accrual-based earnings management to increase their performance-based compensation. As pay bandwagon is a kind of executives’ individual psychological reaction, in a large extent, its behavioral performance is likely to be affected by executive heterogeneity. Specifically, when the proportion of male executives, young executives or low educated executives is relatively high, or executives are located in remote cities, there will breed more earnings management behaviors induced by pay bandwagon. Further study shows that pay bandwagon is positively correlated with rigging compensation based on real earnings management and pay bandwagon also has significantly negative effects on the firms’ future value creation.

Pay bandwagon is an important inducement of executives’ earnings management, with implication that for executives with different characteristics, one should pay attention to the subjective psychological perception and expectation of their pay in the future studies related to executives’ compensation incentives.

This study introduces the research within sociology, psychology and experimental economics, and considers the executives’ subjective perception of their pay, to explore the internal mechanism that executives affect firm performance via a specific earnings management method and to implement self-interested behavior due to pay bandwagon. And this is the first study to select several typical executive individual characteristics to investigate the influence of executive heterogeneity on pay bandwagon and its economic consequences.

This paper aims to analyse whether and how different types of institutional investors influence shareholder proposal initiations, say-on-pay (SOP) votes and management compensation from a sustainability perspective.

Based on the principal-agent theory, the authors conduct a structured literature review and evaluate 40 empirical-quantitative studies on that topic.

The traditional assumption of homogeneity within institutional investors, which is in line with the principal–agent theory, has to be questioned. Only special types of investors (e.g. with long-term and non-financial orientations and active institutions) run an intensive monitoring strategy, and thus initiate shareholder proposals, discipline managers by higher SOP dissents and prevent excessive management compensation.

A detailed analysis of institutional investor types is needed in future empirical analyses. In view of the current debate on climate change policy, future research could analyse in more detail the impact of institutional investor types on proxy voting, SOP and (sustainable) management compensation.

With regard to the increased shareholder activism and regulations on SOP and management compensation since the 2007/2008 financial crisis, firms should be aware of the monitoring role of institutional investors and should analyse their specific ownership nature (time- and content-driven and as well as range of activity).

To the best of authors’ knowledge, this is the first literature review with a clear focus on institutional investor range and nature, shareholder proposal initiation, SOP and management compensation (reporting) from a sustainability viewpoint. The authors explain the main variables that have been included in research, stress the limitations of this work and offer useful recommendations for future research studies.

The purpose of this article is to examine if certain board characteristics have an impact on the total remuneration of top management and the ratio of stock-based remuneration to total top-management remuneration.

The study draws on data from the largest public Canadian companies, the constituents of the TSX/60 index. The study controls for firm size and profitability.

The authors concludes that total remuneration of top management is directly linked to board-member total remuneration and the board average number of director-tenure years. The study also shows that the ratio of stock-based to total top-management remuneration is positively affected by the percentage of independent directors, total remuneration of board directors, the ratio of stock-based remuneration of directors to their total remuneration and the average number of tenure years of the board of directors.

If regulators are determined to curb the excesses in top-management remuneration by means of promoting boards with certain characteristics, they should implement measures facilitating the control of directors’ remuneration and tenure, to discourage cronyistic behavior. Good corporate governance requires that the board act as a counterbalance to top management, ensuring that a substantial percentage of top-executive total compensation is variable, and not fixed. According to our findings, the boards that are the most likely to hold managerial avoidance of variable pay in check are those favoring director independence, variable director remuneration and longer director tenures.

The present article examines specifically the latter aspect, namely, the role of board characteristics (independence, size, compensation, board director ownership and tenure, etc.) in the determination of top-management compensation. This relationship is important because it allows us to further the analysis of corporate governance. If the above-mentioned traits of boards have a meaningful relationship with the compensation of the top management, one might conclude that certain practices in the composition of boards could influence good corporate governance practices. This is relevant for regulatory agencies, for investors and for corporations.

The article adds to the extant literature in a number of ways. Firstly, it considers the role of the traits of the board in the determination of the compensation of the top-management teams, and not only of the chief executive officer, as is the focus of previous literature. Secondly, the article focuses on the power interplay between boards and managers, and, more particularly, on the ability of boards to be an effective mechanism of corporate governance. Finally, the article examines the potential impact of board traits in the determination of top-management compensation in the context of Canadian firms, a subject that has received less attention from academic research, which has mostly concentrated on analyzing the issue in the US context.

The purpose of this paper is to examine the factors affecting the relationships between CEO stock option compensation and earnings management.Design/methodology/approach – Regression of CEO stock option compensation and other factors on measures of discretionary accruals.Findings – A positive relationship between CEO stock option compensation and discretionary accruals was found, implying that earnings management is more likely where stock options are a larger part of CEO compensation. Earnings management is found to be moderated in large firms with stock option compensation and the relationship between stock options and earnings management has intensified in recent years. It was also found that stock options exacerbate earnings management in firms with growth opportunities.Research limitations/implications – Beyond the scope of this paper, these findings raise the following questions: What does the evidence of a size effect mean? Does it reflect information asymmetry, governance, external monitoring, or political risk? Why has the stock option effect on earnings management become more pronounced in recent years? Is it possible to mitigate the negative effects of option compensation on earnings management through the presence of stronger governance structures? Is it possible to mitigate the negative effects of option compensation on earnings management through the presence stronger governance structures? There are implications for compensation policies for corporate executives.Originality/value – This paper extends prior research on the relationship between CEO stock option compensation and earnings management. It provides new insight into the factors affecting this relationship.

The purpose of this paper is to determine what aspects of board independence, in terms of board structure and characteristics of non‐executive directors (NEDs), are associated with effective monitoring of management, as evidenced through lower levels of earnings management.

This paper examines the effectiveness of board independence requirements under the 2003 Australian Stock Exchange (ASX) Principles of Good Corporate Governance and Best Practice Recommendations (POGCG) for a sample of 231 firms listed on the ASX in the financial year 2005. The associations of board composition, share ownership and compensation of NEDs with the level of earnings management are estimated. To explore the characteristics of NEDs that are important for effective monitoring, NEDs are separated into “grey” (affiliated) directors and independent directors and compensation is separated into variable and fixed components.

The results of the paper indicate a positive relation between earnings management and share ownership of NEDs, particularly that of grey directors. There is a negative relation between NED compensation and the level of earnings management, particularly the fixed compensation component for independent directors.

This paper is important to shareholders, academics and policy makers because it shows the type of remuneration and ownership levels for NEDs that are consistent with good corporate governance. NEDs are more effective monitors when independent directors are compensated more as a fixed amount that is not related to the firm's performance. The compensation of grey directors is not associated with the level of earnings management. On the other hand, NEDs are less effective monitors as share ownership by grey directors increases. The share ownership of independent directors is not associated with the level of earnings management. To ensure the independence of the board and enhance its ability and incentives to effectively monitor management, the paper recommends that remuneration of NEDs should be a fixed amount, and the share ownership of NEDs should be limited.

The findings provide guidance as to the meaning of board independence, in terms of the payments and returns that NEDs receive from a company. The results provide support for recommendation 2.1 in the ASX's POGCG that requires the majority of the board to be independent directors. The paper highlights the need for boards to be careful when choosing and rewarding NEDs.

The study examines whether corporate governance moderates the relationship between CEO compensation and earnings management.

The study uses 1,800 firm-year observations from 2005 to 2010 and employ multiple regression analyses and other sensitivity tests.

The study finds a positive relationship between CEO compensation and earnings management. The study’s results also suggest that CEO bonus compensation increases in relation to earnings management and therefore the study infers that managers may become involved in earnings management to increase their compensation. However, the study finds that the relationship is moderated by a strong corporate governance system which reduces the impact of earnings management on CEO compensation.

The study is conducted in a specific context, and therefore it may be subject to a set of limitations. The study emphasises exclusively on whether executives manage earnings to increase their compensation. The study does not consider the issue of several other and potentially contradictory motivations here.

The study’s findings highlight potential implications and offer useful propositions for stakeholders, particularly accounting and corporate governance regulators, to consider. The findings offer a basis for the accounting professions to further discuss and improve accounting standards to provide adequate regulations and monitoring to decrease managerial opportunistic behaviours in earnings manipulations. The findings also emphasise the need for appropriately designed CEO compensation packages in such a manner that improves the manager–shareholder alignment and reduces the information asymmetry problem. The results signify that corporate governance plays a vital role in mitigating the relationship between CEO compensation and earnings management.

This study adds to the existing literature by documenting empirical support on the link between earnings management and CEO compensation against a backdrop of high demand for strong corporate governance practices.

This paper aims to examine the effects of global financial crisis (GFC) on chief executive officers’ (CEO) compensation and earnings management relationship. Specifically, the authors examine whether the recent financial crisis had moderated the relationship between CEO bonus and discretionary accruals.

The authors use panel data for 1,800 firm-year observations (over a period of six years from 2005 to 2010) and use univariate and multivariate tests to test their hypothesis. The authors divide the period into pre-crisis, during-crisis and post-crisis periods to examine how the different financial crisis periods affect the relationship between CEO compensation and earnings management. Various alternative tests including endogeneity test suggest that the results are robust.

The authors’ multivariate results indicate that the relationship between CEO’ compensation and earnings management changes because of the GFC.

The findings, therefore, justify more monitoring and scrutiny to limit the existence of opportunistic managerial behaviour and for the appropriate designing of CEO compensation packages during abnormal economic circumstances.

So far as the authors’ knowledge goes, this is the first study which examines the relationship between CEO compensation and earnings management during GFC.

The purpose of this paper is to investigate the impact of firm-specific (i.e. firm size, profitability, leverage, dividend, growth opportunities, management quality and firm age) and country-specific (i.e., gross domestic product [GDP] growth) variables on compensation/remuneration offered to chief executive officers (CEOs) working in different industries of Pakistan.

Panel data techniques, namely, pooled ordinary least squares, fixed effects and random effects methods are used to estimate the results. Moreover, Hausman test is used to choose which estimation method, either fixed effects or random effects, is better to explain the results.

Firm size, profitability, leverage, growth opportunities and age are some important firm-specific factors that have mixed (i.e. positive/negative) impact on CEO compensation in different industries. Variations in results are due to industry dynamics. However, it is important to mention that three key variables, namely, dividend, management quality and GDP growth have shown consistent positive impact on CEO compensation in most of the industries. In sum, results show that firm-specific and country-specific variables have material effects on CEO compensation. Moreover, results are found consistent with the predictions of agency theory and human capital theory.

The authors are sure that findings of this study provide some support to the board of directors to determine the pay slice for CEOs. Moreover, findings provide support to the regulatory authorities in formulating mechanisms to determine the compensation package for CEOs working in different industries and to improve the Code of Corporate Governance.

To the best of the authors’ knowledge, no empirical study in Pakistan has yet estimated the effects of firm-specific and country-specific variables on compensation offered to CEOs working in different industries. Thus, industry-wise analysis provides some new insights to the decision-makers and lays some foundation upon which a more detail analysis could be based.

This paper analyzes the links among executive compensation, a firm’s strategic orientation, and firm performance. A number of key questions relative to the relationships among these elements remain unanswered because prior research on this subject has reported mixed results, and, moreover, has been confined almost exclusively to U.S. firms. We develop a framework that draws on arguments from agency theory to identify such links. A research design with both archival and survey data is used to test hypotheses in a sample of 253 Spanish companies. We found that top managers’ compensation systems are linked with a firm’s strategic orientations, but in a different form than that of previous studies. Results show two differentiated groups of firms: (1) prospective firms that adapt their managerial compensation systems to the requirements of strategic context, consequently obtaining positive performance effects; and (2) conservative firms that design managerial compensation systems independent of strategic context, consequently not obtaining additional performance benefits.

Based on the theory of “optimal contracting approach” and “the managerial power approach”, this paper aims to investigate whether senior executives of listed companies in China make use of their power to gain their own private benefits. The paper also compares compensation contracts between state- and private-owned enterprises to test whether there is a significant difference between senior executives from different ownership types of enterprises in terms of compensation contracts.

The paper raises four hypotheses based on the theories of “company agency”, “optimal contracting approach” and “managerial power approach”. After that, 5,680 A-share-listed companies of stock market in Shanghai and in Shenzhen Stock Market from 2008 to 2012 were taken as research samples to conduct a series of research analysis, including t-test, reliability analysis and regression analysis, with the help of SPSS 18.0.

The senior executives of listed companies in China could make use of their power to increase their own salary to gain power pay and, at the same time, company performance, company size and other factors that are important to influence the executive compensation. This paper further argues that senior executives of private-owned listed companies are more likely to use their power to obtain power pay and increase their own compensation. Additionally, the agency costs of Chinese listed companies are negatively related to the performance pay of senior executives, whereas there is no obvious negative correlation with the power pay of senior executives.

This paper takes multiple, in-depth approaches to study the relationship among managerial power, agency cost and executive compensation and to find out the differences in compensation contracts of senior executives between private-owned listed companies and state-owned companies. It also provides necessary suggestions to ensure the interests of stockholders, such as: optimizing the management structure of listed companies; improving the transparence of information disclosure of listed companies; establishing effective mechanism of incentive and constraint; and improving and standardizing the market of professional managers.

The compensation contract of senior executives in China is critical to enhance enterprises’ performance, and it will become an important factor that will facilitate the interests of stockholders and management. However, this paper argues that some phenomena of over-payment of senior executives in listed companies cannot be explained by the theory of “optimal contracting approach”, but it is necessary and important to compare the differences of compensation contract of senior executives between private-owned listed companies and state-owned companies. A series of findings are proposed in this paper.

This paper made use of a principal analysis to extract the main factors that could represent the managerial power from different angles. In addition, this paper also compared the differences between compensation contracts of senior executives between private-owned listed companies and state-owned companies. Additionally, in this paper, the compensation of senior executives was divided into “power compensation” and “performance compensation”, which were used to test the relationship with the management cost of companies.