Accounting irregularities, management compensation structure and information asymmetry

Fayez A. Elayan, Jingyu Li and Thomas O. Meyer

Accounting and Finance, 2008, vol. 48, issue 5, pages 741-760

Abstract: The discovery of accounting irregularities is an important negative event for a company. The restatement resulting from the irregularity represents an average of 364 per cent of net income for the 152-firm sample and the irregularities are predominantly revenue enhancing. The irregularity firms exhibit both lower transparency and visibility compared to a matched sample of non-irregularity firms. Furthermore, prior to the announcement, these firms experienced poorer operating performance and their executive compensation structure is found to be significantly more equity-based. Therefore, firms that have greater opportunity and incentive are shown to be more likely to commit accounting irregularities. Copyright (c) The Authors. Journal compilation (c) 2008 AFAANZ.

Date: 2008

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