Board Committees, CEO Compensation, and Earnings Management

• 成果类型: Article
• 署名作者: Laux, Christian; Laux, Volker
• 署名单位: Goethe University Frankfurt; University of Texas System; University of Texas Austin
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr.2009.84.3.869
• 发表日期: 2009
• 页码: 869-891
• 关键词: CORPORATE GOVERNANCE; incentive contracts; equity incentives; performance; DIRECTORS; FRAUD; MODEL; pay

摘要

We analyze the board of directors' equilibrium strategies for setting CEO incentive pay and overseeing financial reporting and their effects on the level of earnings management. We show that an increase in CEO equity incentives does not necessarily increase earnings management because directors adjust their oversight effort in response to a change in CEO incentives. If the board's responsibilities for setting CEO pay and monitoring are separated through the formation of committees, then the compensation committee will increase the use of stock-based CEO pay, as the increased cost of oversight is borne by the audit committee. Our model generates predictions relating the board committee structure to the pay-performance sensitivity of CEO compensation, the quality of board oversight, and the level of earnings management.