CSR-Contingent Executive Compensation Incentive and Earnings Management

Zhichuan (Frank) Li and Caleb Thibodeau
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Zhichuan (Frank) Li: Ivey Business School, University of Western Ontario, London, ON N6A 3K7, Canada
Caleb Thibodeau: Department of Economics, University of Western Ontario, London, ON N6A 3K7, Canada

Sustainability, 2019, vol. 11, issue 12, 1-12

Abstract: This paper empirically studies the connection between earnings management and corporate social performance, conditional on the existence of CSR-contingent executive compensation contracts, an emerging practice to link executive compensation to corporate social performance. We find that executives are more likely to manipulate earnings to achieve their personal compensation goals when CSR rating is low, as well as their CSR-contingent compensation. Because of public pressure on their excessive total compensation, corporate executives see no need to manipulate earnings to increase compensation when their CSR-contingent compensation is already high. Our results suggest that earnings management and CSR-contingent compensation are substitute tools to serve the interests of executives, which is an agency problem that was never previously studied. Additionally, we explore how managerial characteristics affect earnings management, driven by the incentive effects of CSR-linked compensation.

Keywords: earnings management; corporate social responsibility; CSR-contingent compensation; CSR contract; executive compensation; discretionary accruals (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:11:y:2019:i:12:p:3421-:d:241802

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