CEO Pay Contracts and IFRS Reconciliations

52 Pages Posted: 8 Dec 2011 Last revised: 1 Feb 2014

See all articles by Georgios Voulgaris

Georgios Voulgaris

University of Manchester - Alliance Manchester Business School

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School

Martin Walker

University of Manchester - Manchester Business School

Date Written: December 16, 2013

Abstract

We examine whether UK managers exploited the discretion provided in the UK GAAP to IFRS reconciliation process to manage earnings and whether this earnings management is associated with the structure of the managers’ compensation contracts. Using a comprehensive dataset, mainly hand-collected from the firms’ annual reports, we provide evidence that, given the existence of an accounting-related vesting target in their pay schemes, CEOs use UK GAAP to IFRS reconciliations as an earnings management tool. We test our hypotheses under a number of different specifications including a propensity score matching analysis. Our study contributes to the literature on the relation between earnings management and contractual incentives by focusing on a setting surrounding a major structural change in accounting policies.

Keywords: IFRS Reconciliations, CEO pay contracts, Earnings Management, Performance measures, Incentives, Accounting choice

JEL Classification: M41, G34, M21

Suggested Citation

Voulgaris, Georgios and Stathopoulos, Konstantinos and Walker, Martin, CEO Pay Contracts and IFRS Reconciliations (December 16, 2013). European Accounting Review Forthcoming, Available at SSRN: https://ssrn.com/abstract=1969453 or http://dx.doi.org/10.2139/ssrn.1969453

Georgios Voulgaris (Contact Author)

University of Manchester - Alliance Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

Konstantinos Stathopoulos

The University of Manchester - Alliance Manchester Business School ( email )

AMBS Building
Booth Street West
Manchester, M15 6PB
United Kingdom
+44 161 275 6863 (Phone)
+44 161 275 4023 (Fax)

HOME PAGE: http://www.research.manchester.ac.uk/portal/K.Stathopoulos.html

Martin Walker

University of Manchester - Manchester Business School ( email )

Booth Street West
Manchester, M15 6PB
United Kingdom

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