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 language | English |
|---|---|
| Pages (from-to) | 241-257 |
| Number of pages | 17 |
| Journal | Asia-Pacific Journal of Financial Studies |
| Volume | 41 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2012 Jan 1 |
Fingerprint
All Science Journal Classification (ASJC) codes
- Finance
Cite this
}
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, 01.01.2012, p. 241-257.Research output: Contribution to journal › Article
TY - JOUR
T1 - Earnings manipulation, corporate governance and executive stock option grants
T2 - Evidence from taiwan
AU - Wu, Ming-Cheng
AU - Huang, Yi Ting
AU - Chen, Yi Jing
PY - 2012/1/1
Y1 - 2012/1/1
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=84863710558&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84863710558&partnerID=8YFLogxK
U2 - 10.1111/j.2041-6156.2012.01072.x
DO - 10.1111/j.2041-6156.2012.01072.x
M3 - Article
VL - 41
SP - 241
EP - 257
JO - Asia-Pacific Journal of Financial Studies
JF - Asia-Pacific Journal of Financial Studies
SN - 2041-9945
IS - 3
ER -