Earnings Misreporting, the Sarbanes-Oxley Act and Changes in CEO Compensation

2009 ◽  
Author(s):  
Flora Niu ◽  
Yan Wu
Keyword(s):  
Ceo Compensation ◽  
Sarbanes Oxley

Clawback Provision of SOX, Financial Misstatements, and CEO Compensation Contracts

2017 ◽  
Vol 34 (1) ◽  
pp. 74-98 ◽  
Author(s):  
Ramachandran Natarajan ◽  
Kenneth Zheng
Keyword(s):  
Ceo Compensation ◽  
Securities And Exchange Commission ◽  
Money Stock ◽  
Financial Reports ◽  
Compensation Contracts ◽  
Sarbanes Oxley ◽  
Financial Misstatements ◽  
Financial Misstatement ◽  
The Impact ◽  
To Receive

Section 304 of the Sarbanes-Oxley Act (hereafter, SOX), commonly known as the clawback provision, entitles the Securities and Exchange Commission (SEC) to sue the CEO and CFO in an attempt to recover their incentive compensation based on misstated financial reports. Although a stream of literature investigates the effects of voluntary firm-initiated clawback provisions, this study explores the effects of the mandatory SOX clawback provision on the likelihood of financial misstatements and CEO compensation. We find a significant decrease in the association between CEO in-the-money option value and the likelihood of a financial misstatement surrounding SOX, suggesting the SOX clawback provision has been effective in reducing financial misstatements arising from CEO in-the-money stock options. To examine the effects of the SOX clawback provision on CEO compensation, we identify a set of misstatement firms with a high restatement likelihood where the CEOs are most likely concerned with the impact of the SOX clawback provision on their compensation. We find that compared with control firms, these misstatement firms with a high restatement likelihood where the CEO is the chair of the board exhibit an increase in CEO salaries between the pre- and post-SOX periods, suggesting that in the post-SOX period, powerful CEOs are able to receive higher salaries which are not subject to the SOX clawback provision.

scholarly journals The Impact Of Corporate Governance And The Sarbanes-Oxley Act On CEO Compensation

2012 ◽  
Vol 28 (3) ◽  
pp. 463 ◽  
Author(s):  
Mahmoud M. Nourayi ◽  
Lawrence Kalbers ◽  
Frank P. Daroca
Keyword(s):  
Corporate Governance ◽  
Ceo Compensation ◽  
Outside Directors ◽  
Economic Determinants ◽  
Multiple Observations ◽  
Sarbanes Oxley ◽  
Corporate Governance Mechanisms ◽  
Ceo Age ◽  
Regulatory Controls ◽  
The Impact

This paper examines the effects of corporate governance on CEO compensation in light of regulatory controls introduced by the Sarbanes-Oxley Act of 2002 (SOX). The influence of economic and corporate governance variables on incentive-based CEO compensation are considered, using cross-section time-series panel data that includes multiple observations for the years 1999 to 2005. As expected, sales, firm performance (returns), and CEO age were found to positively affect the incentive components of CEO compensation. CEO duality, board size, and the percentage of outside directors had a significant influence on CEO compensation in the pre-SOX, but not post-SOX, period. The influences of these three variables in the pre-SOX period were not in the expected directions. Stratification of our sample into two groups by size reveals similarities and differences between smaller and larger firms. For both groups, economic determinants are more dominant than corporate governance variables as determinants of incentive-based CEO compensation. We find differences in the pattern and significance of variables between the smaller and larger firms, particularly for corporate governance variables, pre- and post-SOX. These results suggest that the effectiveness of corporate governance mechanisms may vary by size of company.

Board Predictive Accuracy in Executive Selection Decisions: How Do Initial Board Perceptions of CEO Quality Correspond with Subsequent CEO Career Performance?

2020 ◽  
Vol 31 (3) ◽  
pp. 720-741 ◽  
Author(s):  
Timothy J. Quigley ◽  
Adam J. Wowak ◽  
Craig Crossland
Keyword(s):  
Human Capital ◽  
Ceo Compensation ◽  
Predictive Accuracy ◽  
Chief Executive ◽  
Capital Theory ◽  
Sarbanes Oxley ◽  
Selection Decisions ◽  
Public Company ◽  
Career Performance ◽  
Ceo Selection

Research examining board efficacy often focuses on oversight and monitoring, particularly as evidenced by the sensitivity of chief executive officer (CEO) compensation to prior firm performance. In this study, we adopt an alternative perspective on CEO compensation—specifically over/underpayment, or the extent to which a CEO’s initial compensation is above or below prevailing market norms—that allows us to assess a board’s efficacy via the accuracy of its initial CEO selection and compensation decisions. We build on and extend human capital theory to argue that boards make initial CEO compensation decisions based a range of manifestations of CEO human capital (that are both observable and unobservable to outsiders) and that initial over/underpayment represents an implicit assessment of underlying CEO quality. Using a sample of 766 CEOs, we relate initial over/underpayment to subsequent CEO career performance. Our results show that this core relationship is positively significant and economically meaningful. Thus, U.S. public company boards, as a group, do tend to be making broadly accurate initial predictions regarding the underlying capabilities of new CEO hires. This relationship is amplified in situations where board assessments of CEO human capital are more unequivocal (greater current versus prospective compensation) and when CEO human capital can be expressed most comprehensively (high managerial discretion). In supplemental analyses we show that these relationships fundamentally changed following the implementation of the Sarbanes–Oxley Act, suggesting that boards may be performing this important aspect of their governance role more effectively in recent times. We also find that our results are not symmetric—rather, they are strongest in situations where initial compensation is midrange or lower; high levels of initial overpayment are not associated with commensurate levels of career performance. Finally, we consider and account for a range of alternative explanations for our central finding.

scholarly journals Was Sarbanes-Oxley Costly? Evidence from Optimal Contracting on CEO Compensation

2015 ◽  
Vol 2015 (017) ◽  
Author(s):  
George-Levi Gayle ◽  
Chen Li ◽  
Robert A. Miller
Keyword(s):  
Ceo Compensation ◽  
Sarbanes Oxley ◽  
Optimal Contracting

Sarbanes-Oxley: Investment Company Compliance

CFA Digest ◽  
2003 ◽  
Vol 33 (4) ◽  
pp. 3-4
Author(s):  
Spencer L. Klein
Keyword(s):  
Investment Company ◽  
Sarbanes Oxley

CEO Compensation and Acquired and Acquiring Companies in Large Corporate Acquisitions

GIS Business ◽  
2016 ◽  
Vol 11 (5) ◽  
pp. 01-13
Author(s):  
Simon Yang
Keyword(s):  
Firm Performance ◽  
Executive Compensation ◽  
Ceo Compensation ◽  
Relative Sensitivity ◽  
Matched Sample ◽  
Executive Pay ◽  
Corporate Acquisitions ◽  
Acquiring Firms ◽  
Managerial Power ◽  
To Receive

This paper examines the relative sensitivity of CEO compensation of both acquiring and acquired firms in the top 30 U.S. largest corporate acquisitions in each year for the period of 2003 to 2012. We find that total compensation and bonus granted to executive compensation for acquired companies, not acquiring companies, are significantly related to the amount of acquisition deal even after the size and firm performance are controlled for. Both acquiring and acquired CEOs are found to make the significantly higher compensation than the matched sample firms in the same industry and calendar year. We also find that executives with higher managerial power, as measured by a lower salary-based compensation mix, prior to a corporate acquisition are more likely to receive a higher executive pay in the year of acquisition. The association between executive compensation and managerial power seems to be stronger for acquired firms than for acquiring firms in corporate acquisition. Overall, our findings suggest that corporate acquisition has higher impacts on executive compensation for acquired firm CEOs than for acquiring firm CEOs.

A INFLUÊNCIA DA LEI SARBANES OXLEY NAS POLÍTICAS DE DIVIDENDOS DE EMPRESAS BRASILEIRAS LISTADAS NA BOLSA DE NOVA YORK

2018 ◽  
Author(s):  
Cícero GUERRA ◽  
Ricardo Carvalho da SILVA ◽  
WAGNER MOURA LAMOUNIER ◽  
José Roberto de Souza FRANCISCO
Keyword(s):  
Sarbanes Oxley
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