Dangling a carrot: Will level of compensation influence the behaviour of CEO with accounting background towards earnings management?

Yvonne Joseph Ason, Imbarine Bujang, Agnes Paulus Jidwin and Jamaliah Said

International Journal of Ethics and Systems, 2021, vol. 37, issue 4, 526-534

Abstract: Purpose - Prior studies had documented that CEOs with accounting backgrounds are more conservative as compared to their non-accounting backgrounds counterparts. However, prior studies also suggested that CEOs with accounting backgrounds tend to engage in earnings management activities because they have the knowledge to do so. Motivated by these findings, this study aims to examine empirically the possibility of executive compensation to play a moderating role in influencing the behaviour of CEO with accounting backgrounds towards earnings management. Design/methodology/approach - This study uses the data from 2013 to 2017 from Malaysian FTSE Top 30 companies. The data on the education backgrounds of the CEOs were collected manually from the companies’ annual reports. CEOs with accounting qualification was coded 1, and 0, otherwise. The earnings management were the discretionary accruals estimated using the modified Jones (1991) model. Meanwhile, the data on executive compensation was also collected manually from the companies’ annual reports. All other governance data were also collected manually from the annual reports, and financial data was collected using the Thompson Reuters DataStream application. Findings - This study found that compensation suffered multicollinearity with the CEO accounting background, thus ineligible to act as a moderating variable between the latter and earnings management. The result further documented a negative but insignificant relationship between compensation with earnings management. Originality/value - This study discusses the possibility of executive compensation as a moderating variable in the relationship between CEOs with accounting backgrounds and earnings management, whereby, to the authors’ best knowledge, such a discussion is limited in the existing literature.

Keywords: Earnings management; CEO; Accounting background; Compensation (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoesp:ijoes-03-2021-0055

DOI: 10.1108/IJOES-03-2021-0055

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