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Article Review_CEO incentives and earnings management

The authors establish that majority of accounting research focuses on bonus-linked targets and little is known about the role of accrual-based measures thus focuses on the latter.

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Article Review_CEO incentives and earnings management

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  1. Article Review(Case Study) Company Name: Home Of Dissertations Website: https://www.dissertationhomework.com Contact Number: +44 7842798340 CONNECTNOW

  2. Article Review: CEO incentives and earnings management Group Members

  3. Aim and research question Aim of the research • To is establish the effect of accruals on income in earnings management. Research Question • Does increasing use of accruals increase stock-based CEO compensation?

  4. Motivation of the Research • The research is motivated by a gap in the accounting literature • The authors establish that majority of accounting research focuses on bonus-linked targets and little is known about the role of accrual-based measures thus focuses on the latter.

  5. Theoretical Framework • Previous research show that accruals policies of managers are related to the nonlinear incentives inherent in their bonus contracts. • The authors are also cognizant that managers manipulate earnings to game bonus schemes thus they have the ability to game the capital markets. • The authors argue that the market seem to have consistently overestimated the persistence of the accruals components of earnings thus overpricing them • The authors also acknowledge that managers manipulate earnings when they or their firms are selling shares to capital markets. • Previous research also establish that earnings restatements are more common at firms where CEOs have larger options portfolios

  6. Contribution to the existing literature • This research paper complements existing literature by providing evidence that accrual-based measures of earnings management are higher at firms with higher levels of stock-based incentives. • In relation to earnings restatement, the paper complements existing literature by focusing on accrual-based measures of earnings management. • The article concurs with existing literature that periods of high accruals coincide with high levels of CEO option exercises and higher levels of CEO and insider share sales • The paper contributes to existing literature by focusing on a variety of measures of insider option exercises and share sales

  7. Hypothesis • H1: Companies with more incentivized CEOs have higher levels of earnings management

  8. THANKYOU!!! Contactus now Website: https://www.dissertationhomework.com Contact Number: +44 7842798340

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