CEO ability, equity incentives, and earnings manipulation
Date Issued
2015
Date
2015
Author(s)
Chen, Hsin-Yu
Abstract
This study examines the relation of CEO ability, equity incentives, and earnings manipulation in Taiwanese high-tech firms. Following the recent literatures on earnings manipulation, this study divides earnings manipulation into accrual-based earnings manipulation (AEM) and real earnings manipulation (REM). The results show that CEO ability is positively (negatively) associated with AEM (REM). The results also suggest that AEM (REM) is increasing (decreasing) with high equity incentives. Specifically, high-ability CEOs are more concerned about long-term implication of aggressive REM than low-ability CEOs are when they have high equity incentives, thereby high equity incentives result a relatively greater negative association between CEO ability and REM. The reasonable explanation is that high-ability CEOs have more knowledge to recognize the negative consequences of abnormal business practice with REM activities. Therefore, high-ability CEOs with high equity incentives appear to be less likely to use REM activities to boost reported income. Collectively, this study finds that CEO ability and equity incentives can and do impact earnings manipulation. In addition, high equity incentives have moderation effect on the relation between CEO ability and earnings manipulation.
Subjects
CEO ability
equity incentives
earnings manipulation
Type
thesis