Earnings manipulation, corporate governance and executive stock option grants: Evidence from taiwan

Ming Cheng Wu, Yi Ting Huang, Yi Jing Chen

Research output: Contribution to journalArticle

3 Citations (Scopus)

Abstract

Executive stock options (ESOs), serving as a compensation mechanism, are widely used in business administration. ESOs link managerial wealth to firm performance and shareholder wealth. The intrinsic value of ESOs is determined by the difference between the stock price and the strike price. Executives, as a result of self-interested incentives, would therefore manipulate firms' reported earnings for influencing stock prices. Such conduct may boost the value of ESOs and then benefit managers greatly. This study attempts to explore if earnings had been manipulated before the ESO award date to satisfy some self-interested managers. In addition, the paper attempts to reveal the cause and effect relationship between executive incentives and earnings management when compensations are linked to stock prices. The empirical results show that there is a significant downward earnings management phenomenon before the ESO award date. Furthermore, quarterly earnings management occurs frequently around the ESO grant date.

Original languageEnglish
Pages (from-to)241-257
Number of pages17
JournalAsia-Pacific Journal of Financial Studies
Volume41
Issue number3
DOIs
Publication statusPublished - 2012 Jun

Fingerprint

Stock option grants
Taiwan
Executive stock options
Corporate governance
Earnings manipulation
Earnings management
Stock prices
Managers
Incentives
Empirical results
Compensation mechanism
Business Administration
Wealth
Intrinsic value
Management compensation
Firm performance
Shareholder wealth

All Science Journal Classification (ASJC) codes

  • Finance

Cite this

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Earnings manipulation, corporate governance and executive stock option grants : Evidence from taiwan. / Wu, Ming Cheng; Huang, Yi Ting; Chen, Yi Jing.

In: Asia-Pacific Journal of Financial Studies, Vol. 41, No. 3, 06.2012, p. 241-257.

Research output: Contribution to journalArticle

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