The effects of global financial crisis on the relationship between CEO compensation and earnings management

Oheneba Assenso-Okofo, Muhammad Jahangir Ali and Kamran Ahmed

International Journal of Accounting & Information Management, 2020, vol. 28, issue 2, 389-408

Abstract: Purpose - This paper aims to examine the effects of global financial crisis (GFC) on chief executive officers’ (CEO) compensation and earnings management relationship. Specifically, the authors examine whether the recent financial crisis had moderated the relationship between CEO bonus and discretionary accruals. Design/methodology/approach - The authors use panel data for 1,800 firm-year observations (over a period of six years from 2005 to 2010) and use univariate and multivariate tests to test their hypothesis. The authors divide the period into pre-crisis, during-crisis and post-crisis periods to examine how the different financial crisis periods affect the relationship between CEO compensation and earnings management. Various alternative tests including endogeneity test suggest that the results are robust. Findings - The authors’ multivariate results indicate that the relationship between CEO’ compensation and earnings management changes because of the GFC. Practical implications - The findings, therefore, justify more monitoring and scrutiny to limit the existence of opportunistic managerial behaviour and for the appropriate designing of CEO compensation packages during abnormal economic circumstances. Originality/value - So far as the authors’ knowledge goes, this is the first study which examines the relationship between CEO compensation and earnings management during GFC.

Keywords: Global financial crisis; CEO compensation; Earnings management (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:ijaimp:ijaim-08-2019-0101

DOI: 10.1108/IJAIM-08-2019-0101

Access Statistics for this article

International Journal of Accounting & Information Management is currently edited by Dr Xin (Robert) Luo and Professor Han Donker

More articles in International Journal of Accounting & Information Management from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().