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- Title
What Does CEOs' Pay-for-Performance Reveal About Shareholders' Attitude Toward Earnings Overstatements?
- Authors
Guthrie, Katherine; Kwon, Illoong; Sokolowsky, Jan
- Abstract
If overstatements were a symptom of the agency conflict, pay-for-performance sensitivities should have increased in response to the additional penalties for misreporting imposed by SOX. Our finding of their decrease is inconsistent with the view that overstatements were an unintended consequence of incentive pay prior to 2002. To corroborate our interpretation, we show that (i) CEO pay-for-performance sensitivities are higher among firms whose shareholders stand to benefit from overstatements; (ii) this cross-sectional relationship weakens significantly after SOX; and (iii) the within-firm decrease in pay-for-performance sensitivity is most pronounced among firms with high pre-SOX shareholder benefits from overstatements.
- Subjects
PAY for performance; MISLEADING financial statements; STOCKHOLDER attitudes; UNITED States. Sarbanes-Oxley Act of 2002; EXECUTIVE compensation; LABOR incentives; CORPORATE profits; EARNINGS management
- Publication
Journal of Business Ethics, 2017, Vol 146, Issue 2, p419
- ISSN
0167-4544
- Publication type
Article
- DOI
10.1007/s10551-015-2891-y