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Executive compensation and earnings management under moral hazard

Bo Sun ()

Journal of Economic Dynamics and Control, 2014, vol. 41, issue C, 276-290

Abstract: This paper analyzes executive compensation in a setting where managers may take a costly action to manipulate corporate performance, and whether managers do so is stochastic. We show that an increase in the possibility of manipulation actually calls for executive pay to be more responsive to reported performance. In addition, regulatory reforms that increase the cost involved in manipulation may lead to reduced pay-for-performance sensitivities. The time-series and cross-sectional variations of executive compensation lend support to our model.

Keywords: Earnings management; Executive compensation; Optimal contract; Corporate governance (search for similar items in EconPapers)
JEL-codes: D82 D86 G38 J31 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Executive compensation and earnings management under moral hazard (2009) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:41:y:2014:i:c:p:276-290

DOI: 10.1016/j.jedc.2014.02.004

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Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

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