TITLE

CEO incentives and earnings prediction

AUTHOR(S)
Gong, James; Li, Siyi
PUB. DATE
May 2013
SOURCE
Review of Quantitative Finance & Accounting;May2013, Vol. 40 Issue 4, p647
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This study investigates whether information about Chief Executive Officer (CEO) incentives is useful for predicting future earnings. We find that in companies with higher CEO equity incentives, current year earnings are more informative of future earnings than in other companies. Additionally, in an earnings prediction setting, CEO incentives are shown to provide information about future earnings that is incremental to current earnings or earnings components. The predictive power of CEO incentives for future earnings is robust to the inclusion of other predictors of future earnings. Furthermore, we find that CEO incentives are predictive of 'real' future earnings, as represented by operating cash flow and non-discretionary accruals, but not predictive of future discretionary accruals. Finally, we find that financial analysts do not incorporate information about CEO incentives when they forecast future earnings. This result suggests that incorporating CEO incentives can potentially improve analyst forecasts of future earnings.
ACCESSION #
86449796

 

Related Articles

  • Accounting Information and CEO Compensation: The Role of Cash Flow from Operations in the Presence of Earnings. NWAEZE, EMEKA T.; YANG, SIMON S. M.; YIN, JENNIFER // Contemporary Accounting Research;Spring2006, Vol. 23 Issue 1, p227 

    We examine the role of cash flow from operations (CFO) in chief executive officer (CEO) cash compensation. We predict that CFO is contract-relevant in the presence of earnings, and more so when (1) the quality of earnings relative to the quality of CFO as a measure of performance is low and (2)...

  • Big Blue's fortunes rise, but Palmisano pays price. Elstein, Aaron // Crain's New York Business;12/27/2004, Vol. 20 Issue 52, p43 

    This article presents information on the salary of chief executive of International Business Machines Corp. With a smaller paycheck, Samuel Palmisano found himself in an exceptional position--one of a small group of executives who saw their pay trimmed as their company's fortunes improved. He...

  • It's the cash flow, baby. Sutton, Gary // Directors & Boards;2007 3rd Quarter, Vol. 31 Issue 5, p10 

    The author suggests a solution to excessive chief executive officer (CEO) compensation. He refutes the notion that CEO compensation is abusive and threatens the entire idea of a public stock market. He argues that his personal investment strategies if adopted by others, would solve all...

  • Editors' Policy Statement.  // Contemporary Accounting Research;Fall98, Vol. 15 Issue 3, preceding p229 

    This paper makes four contributions to the literature relating accounting choices to CEO compensation. First, it shows that discretionary accruals are associated with CEO cash compensation, a result that holds after controlling for both the nondiscretionary components of income and increases in...

  • Accounting Information and CEO Compensation: The Role of Cash Flow from Operations in the Presence of Earnings. NWAEZE, EMEKA T.; YANG, SIMON S. M.; YIN, JENNIFER // Contemporary Accounting Research;Spring2006, Vol. 23 Issue 1, p227 

    We examine the role of cash flow from operations (CFO) in chief executive officer (CEO) cash compensation. We predict that CFO is contract-relevant in the presence of earnings, and more so when (1) the quality of earnings relative to the quality of CFO as a measure of performance is low and (2)...

  • CEO Compensation: Does Financial Crisis Matter? Vemala, Prasad; Lam Nguyen; Dung Nguyen; Kommasani, Alekhya // International Business Research;Apr2014, Vol. 7 Issue 4, p125 

    The topic of CEO compensation has been highly debatable. The financial crisis of 2008 further prompted public and media to question executive compensation practices in the United States. This study investigates the effect of the financial crisis on CEO compensation and also examines various...

  • WATCHDOG OR LAPDOG? A BEHAVIORAL VIEW OF THE MEDIA AS A CORPORATE GOVERNANCE MECHANISM. BEDNAR, MICHAEL K. // Academy of Management Journal;Feb2012, Vol. 55 Issue 1, p131 

    This study begins to provide a behavioral view of the media and corporate governance by showing how firms enact largely symbolic governance changes with respect to board independence that essentially protect managerial interests, yet still elicit positive responses from the media. I show why...

  • Economic and psychological perspectives on CEO compensation: a review and synthesis. O’Reilly, Charles A.; Main, Brian G. M. // Industrial & Corporate Change;Jun2010, Vol. 19 Issue 3, p675 

    To many, the principal–agent model is the obvious lens through which executive pay should be viewed. Such a sentiment sits uncomfortably with a large number of empirical studies suggesting that the process of determining executive pay seems to be more readily explained by recourse to...

  • Price versus Non-Price Performance Measures in Optimal CEO Compensation Contracts. Core, John E.; Guay, Wayne R.; Verrecchia, Robert E. // Accounting Review;Oct2003, Vol. 78 Issue 4, p957 

    We empirically examine standard agency predictions about how performance measures are optimally weighted to provide CEO incentives. Consistent with prior empirical research, we document that the relative weight on price and non-price performance measures in CEO cash pay is a decreasing function...

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics