Earnings and cash flow comparability in executive compensation

Sung-Jin Park and Emeka T. Nwaeze

Asia-Pacific Journal of Accounting & Economics, 2023, vol. 30, issue 1, 72-95

Abstract: We examine whether cross-firm comparability of earnings and operating cash flows influence the usefulness of earnings and cash flows in CEO compensation. We find that earnings (cash flow) comparability is positively associated with the compensation weight of earnings (cash flow) and negatively associated with the weight of cash flow (earnings), suggesting a substitution effect between earnings and cash flow measures. We also find that peer firms ‘stock returns get less negatively associated with CEO compensation as a firm’s earnings comparability increases, suggesting that the filtering role of stock return-based relative performance evaluation decreases as earnings comparability increases.

Date: 2023
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DOI: 10.1080/16081625.2021.1953389

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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