An International Analysis of Director Equity Incentives and Earnings Management

Journal of Accounting and Finance, 18 (2), 123-143, 2017

32 Pages Posted: 17 Nov 2020

See all articles by Min-Yu (Stella) Liao

Min-Yu (Stella) Liao

Illinois State University - Department of Finance, Insurance and Law

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance

Date Written: December 4, 2017

Abstract

Using data from 29 countries, I examine how directors’ equity incentives affect earnings management internationally. I find that firms whose directors awarded higher percentage equity-based compensation are associated with greater use of earnings management. Such positive relation between equity incentives and earnings management persists regardless whether a director serves on the audit committee, or whether a director is classified as an independent or inside director. However, this association is reversed at firms with greater board or audit committee independence. Finally, using a matched sample of American Depository Receipts (ADRs) and non-ADRs, I provide evidence that although ADRs exhibit less earnings management relative to non-ADRs, having an ADR does not deter the attempt of directors with high equity incentives to manipulate earnings.

Keywords: governance; boards; compensation; audit; earnings management

JEL Classification: G3; J3; J33; M41; M42; M52

Suggested Citation

Liao, Min-Yu (Stella) and Ferris, Stephen P., An International Analysis of Director Equity Incentives and Earnings Management (December 4, 2017). Journal of Accounting and Finance, 18 (2), 123-143, 2017, Available at SSRN: https://ssrn.com/abstract=3701827 or http://dx.doi.org/10.2139/ssrn.3701827

Min-Yu (Stella) Liao (Contact Author)

Illinois State University - Department of Finance, Insurance and Law ( email )

Normal, IL 61790
United States

Stephen P. Ferris

University of Missouri at Columbia - Department of Finance ( email )

214 Middlebush Hall
Columbia, MO 65211
United States
573-882-6272 (Phone)
573-884-6296 (Fax)

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