Executives’ Equity-Based Compensation and Accounting Conservatism

• Main Authors: Yu-Hsuan Yang, 楊于萱
• Other Authors: Chi-Chun Liu
• Format: Others
• Language: en_US
• Published: 2014
• Online Access: http://ndltd.ncl.edu.tw/handle/12866779838901752970

碩士 === 國立臺灣大學 === 會計學研究所 === 102 === This paper examines the relation between executives’ equity-based compensation and accounting conservatism. Since both mechanisms may mitigate the agency problems between managers and shareholders, I hypothesize that there is a negative relation between the proportion of equity-based compensation to executives and the level of conservatism. Using a large sample of US firms during the period 1993-2012, I find that the coefficient of interaction on the ratio of executives’ equity-based to total compensation and accounting conservatism is negative and significant. Further, I divide the whole sample period into four parts: 1993-2001, 2003-2005, 2006-2008, and 2009-2012. The results of period 2003-2005 and 2006-2008 are consistent with my hypothesis: the asymmetric timeliness of earnings declines with managerial proportion of executives’ equity-based compensation. However, the outcomes of period 1993-2001 and 2009-2012 are negative but not significant. The reason might be that accounting standard at that time is associated with adoption and shareholders’ understanding of managers’ incentives plan. Besides, the trend of stock market may bring about an unobvious effect. The results are robust after controlling for the investment opportunity set and additional tests.