Does Firm Performance Reduce Managerial Opportunism? The Impact of Performance-Based Compensation and Firm Performance on Illegal Accounting Restatement.

Abstract

In this study, we present a timely research with regard to managers' opportunistic behaviors - financial statement manipulation. We inquire as to whether the performance-based compensation (PBS) granted to managers influences managerial opportunism. We further examine whether firm performance reduces managerial opportunism. Specifically, we investigate the moderating roles of firm performance - corporate responsibility (CR) and corporate financial performance (CFP) on managers' opportunistic behaviors. For empirical testing, we used three databases, KLD social data, ExecuComp data, and CompuStat data, and employed hierarchical binomial logistic regression analysis. As hypothesized, PBC has a positive and significant effect on managers' opportunistic behaviors, measured as accounting restatements. However, better CR does not reduce managers' propensity for accounting restatements. CFP has mixed effects. The study's results suggest the need to develop a deeper understanding of the relationship of firm performance to opportunistic behaviors.