Abstract
AbstractThis paper examines the effects of the managerial horizon, CEO pay‐performance sensitivity, and CEO firm‐related wealth on earnings management. Using two measures of pay‐performance sensitivity (CEODelta and CEOVega) in our regression analysis, we find that CEO pay‐performance sensitivity significantly affects earnings management in the early years of the CEO's services, not in retirement years. We further examine the earnings management behavior surrounding the retirement years and find that the pay‐performance sensitivity of CEO compensation is negatively associated with earnings management. Furthermore, the closer the retirement year, the lower level of earnings management observed in our sample. Finally, we further examine whether the CEOs’ firm‐related wealth affects earnings management during CEO tenure and find that CEO's firm‐related wealth also has a pronounced effect on earnings management during the CEO tenure.
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