Accounting earnings and executive compensation:

William R. Baber · Sok‐Hyon Kang · Krishna R. Kumar

209 citations0/0 files storedJournal of Accounting and Economics

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Auditing, Earnings Management, Governance Corporate Finance and Governance Accounting and Organizational Management

Abstract

A cross-sectional analysis of cash compensation paid to CEOs of 713 US firms reveals that the sensitivity of compensation to earnings varies directly with earnings persistence. Additional analysis indicates that this sensitivity is greater for cases where executives are approaching retirement. Such evidence suggests the use of earnings persistence to counterbalance adverse consequences of earnings-based contracting with managers who face finite decision horizons.

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References

1973The Pricing of Options and Corporate Liabilities 1993Common risk factors in the returns on stocks and bonds 1980Agency Problems and the Theory of the Firm 1979Moral Hazard and Observability 1996Higher market valuation of companies with a small board of directors 1990Performance Pay and Top-Management Incentives 1982Moral Hazard in Teams 1992The investment opportunity set and corporate financing, dividend, and compensation policies

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