Incentive Compensation of Financial Executives, Unethical Behavior, and Earnings Management

Research aims: This study aims to investigate the effect of corporate social responsibility on earnings management by considering the impact of investor protection.Design/Methodology/Approach: This study’s population was plantation companies listed in Indonesia Stock Exchange and Malaysia Stock Exchange. The period of this study was from 2012 to 2017. Moreover, the hypotheses testing technique used was multiple regression analysis.Research findings: This study’s results revealed that corporate social responsibility disclosure and investor protection significantly affected earnings management.Theoretical contribution/Originality: These results support the ethics hypothesis stating that companies committed to ethics view earnings management unethical behavior. This study also verifies the relationship between legal systems and earnings management.

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The Effects of Clawbacks on Auditors' Propensity to Propose Restatements and Risk Assessments

Current Issues in Auditing ◽

10.2308/ciia-52483 ◽

2019 ◽

Vol 13 (2) ◽

pp. P12-P20 ◽

Cited By ~ 1

Author(s):

William D. Brink ◽

Jonathan H. Grenier ◽

Jonathan S. Pyzoha ◽

Andrew Reffett ◽

Natalie Zielinski

Keyword(s):

Unethical Behavior ◽

Financial Statements ◽

Interview Data ◽

Risk Assessments ◽

Incentive Compensation ◽

Future Research ◽

Sarbanes Oxley ◽

A Company

SUMMARY The Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act of 2010 include clawback provisions requiring executives to pay back incentive-based compensation that they earned based on financial statements that are subsequently restated. These provisions intend to reduce unethical behavior, as executives may be less likely to manipulate the financial statements to increase incentive compensation. However, prior research finds that at times executives are less willing to restate financial statements when a company has adopted a clawback (Pyzoha 2015). Relatedly, this paper summarizes the results of a recent study (Brink, Grenier, Pyzoha, and Reffett 2018) that investigates whether auditors might be less likely to propose restatements in the presence of a clawback. Contrary to expectations, results of three experiments, paired with survey and interview data, indicate the presence of a clawback has no effect on auditors' propensity to propose restatements. We discuss implications for practice and provide suggestions for future research.

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Female directors, earnings management, and CEO incentive compensation: UK evidence

Research in International Business and Finance ◽

10.1016/j.ribaf.2019.05.001 ◽

2019 ◽

Vol 50 ◽

pp. 153-170 ◽

Cited By ~ 12

Author(s):

Mostafa Harakeh ◽

Walid El-Gammal ◽

Ghida Matar

Keyword(s):

Earnings Management ◽

Incentive Compensation ◽

Female Directors

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MANAJEMEN LABA DAN KONSEKUENSI EKONOMIS (SUATU PENDEKATAN EKSPERIMEN)

Jurnal Aplikasi Akuntansi ◽

10.29303/jaa.v4i1.60 ◽

2019 ◽

Vol 4 (1) ◽

pp. 15-28

Author(s):

Eni Indriani ◽

Rahmi Sri Ramadhani ◽

Robith Hudaya ◽

Tuti Handayani

Keyword(s):

Earnings Management ◽

Unethical Behavior ◽

Management Practices ◽

Experimental Approach ◽

Positive Impact ◽

Accounting Standards ◽

Economic Consequences ◽

Accounting Data ◽

Economic Decision Making ◽

Two Sides

Earnings management can be seen as a discretion allowed by generally accepted Standards, but it also has a less positive impact if earnings that contain certain objectives of the manager (management) become the basis in economic decision making. However, earnings management does not have to be associated with efforts to manipulate accounting data or information, but tends to be associated with choosing accounting methods to manage earnings that can be done because it is permitted by accounting standards. This study is focused on looking at the two sides of earnings management by using an experimental approach and the economic consequences caused by the chosen perspective. The results of data processing indicate that participants' perceptions of ethical and unethical behavior towards earnings management practices are the same as the economic consequences for the organization.

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The Effect of the Compensation System on Earnings Management and Sustainability: Evidence from Korea Banks

Sustainability ◽

10.3390/su11113165 ◽

2019 ◽

Vol 11 (11) ◽

pp. 3165 ◽

Cited By ~ 3

Author(s):

Mijoo Lee ◽

In Tae Hwang

Keyword(s):

Earnings Management ◽

Financial Institutions ◽

Global Financial Crisis ◽

International Standards ◽

Incentive Compensation ◽

Loan Loss ◽

Financial Systems ◽

Managerial Decision ◽

The One ◽

The Global Financial Crisis

Since the global financial crisis, management incentive compensation, which is sensitive to financial firms’ short-term performance, has been noted to threaten financial systems’ sustainability by incentivizing managers to pursue excessive risks. Subsequently, international standards have been established regarding compensation for financial institutions’ senior executives and employees. However, this compensation may impact not only banks’ risk-taking behaviors, but also their earnings management, as the latter affects financial performance while compensation is decided as a reflection of such performance. Therefore, this study analyses executive compensation’s impact on banks’ earnings management using compensation data on South Korean banks. The analysis revealed higher earnings management using a loan loss provision with more variable compensation. On the one hand, if the proportion of equity-linked compensation to incentive compensation increased, then earnings management increased. On the other hand, more deferred compensation led to increased earnings smoothing. This study evaluates regulatory impacts across multiple dimensions by analyzing the effects of incentive compensation standards—intended to increase financial systems’ sustainability—on individual financial institutions and further contributes to studies on managerial decision making.

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Undesirable Effects of Goal Setting on Perceived Fairness, Commitment, and Unethical Behavior

Zeitschrift für Arbeits- und Organisationspsychologie A&O ◽

10.1026/0932-4089/a000267 ◽

2018 ◽

Vol 62 (2) ◽

pp. 97-107 ◽

Cited By ~ 2

Author(s):

Nina Keith

Keyword(s):

Goal Setting ◽

Unethical Behavior ◽

The United States ◽

Goal Commitment ◽

Management Technique ◽

Long Term Effects ◽

Perceived Fairness ◽

Negative Effects ◽

Positive Effects ◽

And Performance

Abstract. The positive effects of goal setting on motivation and performance are among the most established findings of industrial–organizational psychology. Accordingly, goal setting is a common management technique. Lately, however, potential negative effects of goal-setting, for example, on unethical behavior, are increasingly being discussed. This research replicates and extends a laboratory experiment conducted in the United States. In one of three goal conditions (do-your-best goals, consistently high goals, increasingly high goals), 101 participants worked on a search task in five rounds. Half of them (transparency yes/no) were informed at the outset about goal development. We did not find the expected effects on unethical behavior but medium-to-large effects on subjective variables: Perceived fairness of goals and goal commitment were least favorable in the increasing-goal condition, particularly in later goal rounds. Results indicate that when designing goal-setting interventions, organizations may consider potential undesirable long-term effects.

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