Stock-Based Compensation and Earnings Management Behaviors

Yu-Cheng Chen (), Chia-Hao Lee () and Pei-I Chou ()
Additional contact information
Yu-Cheng Chen: Department of Finance, National Chung Hsing University, Taichung, Taiwan, R.O.C
Pei-I Chou: Department of Business, National Open University, New Taipei City, Taiwan, R.O.C

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2015, vol. 18, issue 02, 1-33

Abstract: The purpose of this paper is to investigate whether a CEOs stock-based compensation incentive, that is one of the main corporate governance dimensions, has different impacts on accruals-based earnings management (AEM) and real activities earnings management (REM) which have different economic costs. Empirical results show that CEOs stock-based compensation incentive has a positive impact on AEM but a negative impact on REM, implying stock-based compensation incentive leads executives to use more AEM but less REM. Given that the SOX places additional compensation risk on executives, the stock-based compensation is an incentive to significantly encourage managers for using more AEM during the pre-SOX period and less REM during the post-SOX period. The evidence implies that managers change their risk perceptions for AEM and REM after the enactment of SOX, and then their earnings management behaviors indeed change for avoiding wealth-destroying pitfalls. These results bring a new insight into the ability to prevent managers from increasing personal wealth at shareholders' expense.

Keywords: Corporate governance; real activities earnings management; executive stock-based compensation incentive; SOX act (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2015
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219091515500083
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:wsi:rpbfmp:v:18:y:2015:i:02:n:s0219091515500083

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219091515500083

Access Statistics for this article

Review of Pacific Basin Financial Markets and Policies (RPBFMP) is currently edited by Cheng-few Lee

More articles in Review of Pacific Basin Financial Markets and Policies (RPBFMP) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().