The Effects of the 2006 Sec Executive Compensation Disclosure Rules on Managerial Incentives

Journal of Contemporary Accounting & Economics, 2016, DOI: 10.1016/j.jcae.2016.09.003

Posted: 31 Oct 2016

See all articles by Reza Espahbodi

Reza Espahbodi

Ball State University

Nan Liu

Peking University

Amy Westbrook

Washburn University School of Law

Date Written: October 25, 2016

Abstract

In 2006, the SEC amended the disclosure requirements for executive compensation and stock ownership. This paper examines the effects of these amendments on (1) the association between equity-based executive incentives and firm payout choice, and (2) the association between executive compensation and earnings management. We find that after the effective date of the SEC rules, the positive associations between executive stock option holdings and firm open-market repurchases, and between executive shareholdings and firm dividend payouts, have weakened. In addition, the positive associations between bonus and discretionary accruals, between bonus and real earnings management, and between equity compensation and real earnings management, have decreased. In general, these findings are consistent with the notion that the 2006 SEC disclosure rules lowered management's self-interested actions by mitigating the information asymmetry between investors and managers.

Keywords: executive compensation, payout policy, real earnings management, accruals management

Suggested Citation

Espahbodi, Reza and Liu, Nan and Westbrook, Amy, The Effects of the 2006 Sec Executive Compensation Disclosure Rules on Managerial Incentives (October 25, 2016). Journal of Contemporary Accounting & Economics, 2016, DOI: 10.1016/j.jcae.2016.09.003, Available at SSRN: https://ssrn.com/abstract=2858948

Reza Espahbodi

Ball State University ( email )

United States

HOME PAGE: http://bsu.edu

Nan Liu

Peking University ( email )

HSBC Business School
Shenzhen, 518055
China

Amy Westbrook (Contact Author)

Washburn University School of Law ( email )

1700 College Avenue
Topeka, KS 66621
United States

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