The asymmetric relationship between executive earnings management and compensation: a panel threshold regression approach

Leon Li, Mark Holmes () and Bong Soo Lee

Applied Economics, 2016, vol. 48, issue 57, 5525-5545

Abstract: Prior research shows that chief executive officers (CEOs) are rewarded for their earnings management. We re-examine this issue using a panel threshold regression approach, which allows the effect of earnings management on the CEO compensation to change across the level of earnings management and CEO compensation. Our results show that the effect of CEOs’ discretionary accounting choices on their compensation is not homogeneous across various degrees of earnings management and compensation. In particular, for firms with moderate (inordinate) levels of earnings management and CEO compensation, earnings management is rewarded (penalized).

Date: 2016
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DOI: 10.1080/00036846.2016.1181707

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