Board committees, CEO compensation, and earnings management : [Version March 2007]

We analyze the effect of committee formation on how corporate boards perform two main functions: setting CEO pay and overseeing the financial reporting process. The use of performance-based pay schemes induces the CEO to
We analyze the effect of committee formation on how corporate boards perform two main functions: setting CEO pay and overseeing the financial reporting process. The use of performance-based pay schemes induces the CEO to manipulate earnings, which leads to an increased need for board oversight. If the whole board is responsible for both functions, it is inclined to provide the CEO with a compensation scheme that is relatively insensitive to performance in order to reduce the burden of subsequent monitoring. When the functions are separated through the formation of committees, the compensation committee is willing to choose a higher pay-performance sensitivity as the increased cost of oversight is borne by the audit committee. Our model generates predictions relating the board committee structure to the pay-performance sensitivity of CEO compensation, the quality of board oversight, and the level of earnings management.
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Metadaten
Author:Christian Laux, Volker Laux
URN:urn:nbn:de:hebis:30-50576
Parent Title (English):Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 181
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (181)
Publisher:Univ., Fachbereich Wirtschaftswiss.
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2007
Year of first Publication:2007
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2007/10/26
Tag:board oversight; corporate governance; earnings management; executive compensation
SWD-Keyword:Generaldirektor; Geschäftsführer; Topmanager; Vorstandsvorsitzender
Issue:Version March 2007
HeBIS PPN:194393933
Institutes:Wirtschaftswissenschaften
Dewey Decimal Classification:330 Wirtschaft
JEL-Classification:D23 Organizational Behavior; Transaction Costs; Property Rights
D73 Bureaucracy; Administrative Processes in Public Organizations; Corruption
G34 Mergers; Acquisitions; Restructuring; Corporate Governance
K22 Corporation and Securities Law
L29 Other
M41 Accounting
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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