TITLE

EXECUTIVE COMPENSATION, EARNINGS MANAGEMENT AND OVER INVESTMENT IN MALAYSIA

AUTHOR(S)
Chu, Ei Yet; Song, Saw Imm
PUB. DATE
July 2012
SOURCE
Asian Academy of Management Journal of Accounting & Finance;2012, Vol. 8 Issue Supp1, p13
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
The study investigates the inter-relationship between executive compensation, earnings management and over investment. Using a sample of 196 Malaysian public listed firms, the findings show a positive endogenous relationship between executive compensation and over investment. Measuring equity compensation in incentive ratio, for each percent of over investment, one percent improvement in share prices will increase 23% of executive directors' equity value. Over investment, however, leads to a decline in executive directors' equity value in large shareholders controlled firms. In addition, one percent of over investment can explain 12% of earnings management. Nevertheless, earnings management does not explain executive directors' compensation. In summary, aligning over-investment with executive compensation schemes has implied that the existing compensation is insufficient for executive directors to align their interest with the objective to maximise shareholders' value.
ACCESSION #
88033096

 

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