Investor perceptions of the earnings quality consequences of CEO paycuts

• Main Authors: Yin-HsuanChao, 趙尹萱
• Other Authors: Ting-Kai Chou
• Format: Others
• Language: zh-TW
• Published: 2018
• Online Access: http://ndltd.ncl.edu.tw/handle/3jjch6

碩士 === 國立成功大學 === 會計學系 === 106 === Boards sometimes cut a CEO’s pay following poor performance. However, regarding performance improvement following CEO paycuts, CEOs are likely to engage in earnings management. This study examines whether investor perceptions of the earnings quality consequences of CEO paycuts change or not. We identify firms with CEO paycuts as the treatment group during the period 1994–2014. We then create a propensity-score-matched control group of firms that did not cut their CEOs’ pay and employ a difference-in-differences approach to examine the consequences. Empirical results show that the earnings response coefficient (ERC) declines following CEO paycuts. Investors doubt earnings surprise about firms with CEO paycuts. Further, we find that investor concerns about CEO paycuts only occur in firms with weak external supervision. Therefore, in firms with weak external supervision, CEO paycuts may result in the loss of firm value.