The effect of outside directors’ and auditors’ incentives on managers’ ability to manage cash bonuses

Christiane Pott (), Tobias Tebben () and Christoph Watrin ()

Journal of Management & Governance, 2014, vol. 18, issue 2, 505-540

Abstract: This paper investigates the impact of outside directors’ and auditors’ monetary incentives on the association between discretionary accounting and managers’ cash bonuses in a two-tier system. For a sample of German stock corporations from 2005 to 2007 we expect and find that outside directors who receive compensation based on accounting income and auditors who receive high non-audit fees have the incentive to tolerate managers’ bonus-increasing accounting choices. More specifically, we show that positive discretionary accruals are more strongly associated with managers’ cash bonuses than negative discretionary accruals if outside directors receive accounting-based compensation and/or if auditors receive high non-audit fees. Our results suggest that executives’ ability to manage their cash bonuses depends on the monitoring institutions’ monetary incentives. Copyright Springer Science+Business Media New York 2014

Keywords: Bonus compensation; Earnings management; Discretionary accruals; Outside directors; Auditor independence; Non-audit fees; Corporate governance; Monitoring; M12; M41; M42 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10997-012-9252-3

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