Earnings Quality and Pay-Performance Sensitivity: Evidence from Employee Profit-Sharing Bonus in Taiwan
Journal
Asia Pacific Management Review
Journal Volume
18
Journal Issue
3
Pages
275-299+iii
Date Issued
2013
Author(s)
Abstract
Using data on the widespread profit-sharing schemes in Taiwan, we explore whether companies take into consideration earnings quality in the pay-performance sensitivity of employee profit-sharing bonus, and whether corporate governance helps improve the alignment. Our results show that the sensitivity of profit-sharing bonus to earnings performance is increasing in earnings management. However, we find that in firms with strong governance the pay-performance sensitivity of managed earnings is significantly reduced. The results are robust to controlling for firm characteristics and to different earnings quality. Our study provides important implications for the effective use of profit-sharing plans.
Type
journal article