Earnings management constraints inthe UK and the US: the moderating role of CEO compensation
Student thesis: Doctoral Thesis
This thesis examines the moderating role of CEO compensation on the associations between earnings management and four factors (audit quality, institutional ownership, concentrated ownership and cash holdings). This study reveals the effectiveness of the incentive power of CEO compensation, in line with the controlling power of other corporate governance mechanisms in restraining EM practices. This study is a comparative analysis of the UK and the US-listed firms, between 2005 and 2016, to analyse if the moderating role of CEO compensation acts differently within the two contexts, as they both have different CEO roles and responsibilities on which different levels of compensation are granted. The study also analyses the impact of cash holdings on EM. In addition, it analyses the impact of the moderating role of CEO compensation in low compared to high cash holding firms, to reveal the effectiveness of the moderation effect, as well as the corporate governance mechanisms incorporated, in the presence of different levels of cash. After conducting the analyses, this study reveals that the moderating role of CEO compensation becomes an effective strategy in restraining EM practices only in the presence of cash holdings, within the US context. Consequently, cash holdings are revealed to have a significant positive association with EM, only in the US, while it’s found to have an insignificant impact in the UK. Finally, in low cash holding firms, CEO compensation, audit quality, and the joint effect of CEO compensation with ownership concentration are proved to add value in restraining EM practices in the UK-listed firms, while none of the corporate governance mechanisms or the moderation effects proves to be effective in reducing managerial opportunism within high cash holding firms within the UK or US-listed firms holding different levels of cash.
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