Download or read book CEO Inside Debt and Earnings Management written by Sandip Dhole and published by . This book was released on 2015 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the impact of CEO inside debt on earnings management. Theory predicts that CEOs with higher inside debt holdings adopt less risky corporate policies and choose investment policies that result in less volatile earnings. Under such circumstances, CEOs would face weaker demand for income smoothing. Consistent with these expectations, our results reveal that CEO inside debt is negatively associated with both accrual and real activities based earnings management. We also find that firms with higher levels of CEO inside debt are less likely to meet or slightly beat analysts' earnings forecasts. Further, the capital market response to positive earnings surprises is greater when CEOs hold higher positions of inside debt. Overall, our findings suggest that inside debt counteracts CEOs' incentives to smooth earnings through earnings management and investors understand the deterrence effect of inside debt on earnings management.

Download or read book CEO Inside Debt and Firm s Maturity Structure of Debt written by Safi Khan and published by . This book was released on 2016 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines managerial compensation incentives and its impact on firm's financial decisions. Specifically, we examine how CEO's inside-debt based compensation incentives (pension benefits and other deferred compensation) influences firm's debt maturity structure. We examine this relationship in the context of the hypothesis that CEO's inside-debt based incentives exposes managers to similar kind of default risk as any other unsecured risky debt, which may change their risk preferences that may have an influence on firm's financial decisions. Empirical evidence of this study supports a view that when manager's ex-ante incentives for substituting risky assets over safe assets is low (that is, higher CEO-debt based incentives as compared to equity-based compensation incentives), creditors allow firms maintain long-maturity debt since high inside debt-based incentives can substitute for the monitoring incentive mechanism of short-term debt.

Download or read book CEO Inside Debt and Firm Debt written by Randy Beavers and published by . This book was released on 2015 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: I analyze both CEO inside debt and firm debt jointly to further investigate the compensation incentives on risky decision-making and the resulting financial policy decisions concerning the debt structure of the firm. I find larger firms with high CEO inside debt tend to diversify, as calculated by the Herfindahl-Hirschman index of debt type usage. These types of firms use a higher percentage of term loans and other debt but a lower percentage of drawn credit lines and commercial loans. Larger firms with high CEO inside debt have lower interest rates on these debt instruments and shorter maturities, suggesting a more conservative financing policy with regards to debt.

Download or read book Earnings Management written by Joshua Ronen and published by Springer Science & Business Media. This book was released on 2008-08-06 with total page 587 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?

Download or read book CEO Inside Debt and Investment Cash Flow Sensitivity written by Jianlei Han and published by . This book was released on 2015 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides a new explanation for investment-cash flow sensitivity from the perspective of CEO inside debt holdings. We examine the effect of CEO pensions and deferred compensation (inside debt) on investment-cash flow sensitivity for a sample of U.S. manufacturing firms from 2006 to 2012. We find that the firms with higher relative CEO leverage ratios (CEO's debt/equity ratio scaled by the firm's debt/equity ratio) generate higher investment-cash flow sensitivity. Moreover, one standard deviation increase in the logarithm of the relative CEO leverage ratio enlarges investment-cash flow sensitivity by 50 percent. This positive relationship still holds even after we take account of endogeneity and financial constraints.

Download or read book Two Essays on CEO Inside Debt Holding in Relation to Firm Payout Policy and Financial Reporting written by Asligul Erkan and published by . This book was released on 2016 with total page 220 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book CEO Inside and Firm s Maturity Structure of Debt written by Safi Khan and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines managerial compensation incentives and its impact on firm's financial decisions. Specifically, we examine how CEO's inside-debt based compensation incentives (pension benefits and other deffered compensation) influences firm's debt maturity structure. We examine this relationship in the context of the hypothesis that CEO's inside-debt based incentives exposes managers to similar kind of default risk as any other unsecured risky debt, which may change their risk preferences that may have an influence on firm's financial decisions. Empirical evidence of this study supports a view that when manager's ex-ante incentives for substituting risky assets over safe assets is low (that is, higher CEO-debt based incentives as compared to equity-based compensation incentives), creditors allow firms maintain long-maturity debt since high inside debt-based incentives can substitute for the monitoring incentive mechanism of short-term debt.

Download or read book Chalk It Up to Experience written by Kourosh Amirkhani and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide evidence that firms managed by CEOs with high general ability, or broad experience in their background, are more likely to utilize discretionary accruals to manage earnings than CEOs with focused experience. Cross-sectional variation suggests that the mechanism underlying the increased use of discretionary accruals is generalist CEOs' increased willingness to bear the risk inherent in managing earnings given their enhanced tolerance for failure stemming from outside career options. Importantly, the practice is more pronounced for CEOs of firms with suspect earnings. The evidence suggests that the diversity of CEOs' experience influences incentives to manage earnings.

Download or read book Essays on Ceo Inside Debt written by Wei Cen and published by . This book was released on 2011 with total page 128 pages. Available in PDF, EPUB and Kindle. Book excerpt: Executive defined benefit pensions and deferred compensation are known as "inside debt". The reason is that their values depend on the ability of the firm to make future payments to its participant employees. Such plans have the potential of mitigating the risk-shifting problem of managers (Jensen and Meckling (1976)) because executives who own inside debt are worried about firm default risk and not only about shareholder return. In this dissertation, I examine the determinants of CEO inside debt and its components. I then use the inside debt as a measure of CEO risk preferences and examine its relation to firms' risk. In Chapter one, I use the new SEC disclosure rule of 2006 to examine the determinants of CEO inside debt. I find that CEOs defer a larger fraction of their compensation when their cash compensation is high, firm liquidity is high, firm default risk is low, and when executive personal wealth is high. These findings are consistent with CEOs choosing to defer compensation when they least need the money and when they do not expect the firm to default. In contrast to previous studies, I find a non-linear inverted U-shape relation between firm leverage and CEO inside debt. In particular, CEOs reduce their inside-debt when the firm is highly levered. Using novel data from executive deferred compensation, Chapter two presents new evidence on the relationship between CEO risk preference and firm risk (the volatility of firm performance measures such as stock return, earnings and operating cash flows). My results show a negative association between the CEO risk aversion (as measured by realized performance on inside debt) and the volatility of firm market performance: Firms with risk-averse CEOs have experience less stock price volatility. I also find that firms providing deferred compensation plans have lower performance volatility. The results contribute to the inside debt literature by showing that debt compensation is related to lower firm risk and lower firm market value. inside.

Download or read book CEO Inside Debt and Corporate Debt Maturity Structure written by Viet Anh Dang and published by . This book was released on 2016 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the relation between chief executive officer (CEO) inside debt holdings and corporate debt maturity. We provide robust evidence that inside debt has a positive effect on short-maturity debt and that this effect is concentrated in financially unconstrained firms that face lower refinancing risk. Our analysis further shows that CEO inside debt helps reduce the cost of debt financing. Overall, our results indicate that managerial holdings of inside debt facilitate access to external debt financing and reduce refinancing risk, thus incentivizing managers to use less costly shorter term debt.

Download or read book CEO Origin and Accrual Based Earnings Management written by Yu Flora Kuang and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the influence of CEO origin on accrual-based earnings management and how these effects evolve over the CEO's tenure in office. Compared with CEOs promoted from within the company, CEOs recruited from outside have a stronger incentive to demonstrate their abilities in the initial years after their appointment; these outside CEOs also may have a lower expectation of surviving the short run. We predict and find that outside CEOs engage in greater income-increasing manipulation in the early years of their tenure. However, the differences in earnings management practices become insignificant after CEOs survive the short run. Our results are robust to a variety of alternative hypotheses and sensitivity checks. The findings thus show that CEO origin is an important factor for explaining financial reporting strategies; they also add to our understanding of CEO origin, managerial horizon problems, and the determinants of aggressive accounting.

Download or read book Inside Debt and Corporate Failure written by Ngoc Giang Hoang and published by . This book was released on 2014 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the impact of executive pensions and deferred compensation plans, collectively known as "inside debt'', on corporate failures. I find that, on average, a firm whose CEO holds a larger fraction of the firm's debt than equity (i.e., when the ratio of the CEO's inside debt holdings divided by the firm's debt is larger than the ratio of the CEO's equity holdings divided by the firm's market capitalization) has a hazard rate of failure that is 51% lower than a firm in which this relation is reversed. The evidence also indicates that CEOs with larger incentives provided by inside debt manage their firms more conservatively. Finally, I document that inside debt is associated with higher recovery rates for creditors in bankruptcy. This result is consistent with the hypothesis that inside debt incentivizes managers to preserve firm value in bankruptcy.

Download or read book Inside Debt and Stock Price Performance written by Bill B. Francis and published by . This book was released on 2014 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze whether paying CEOs with inside debt (pensions and deferred compensation) benefits shareholders. We find that stock price reaction to initial revelation of inside debt information following the SEC amendment is significant and positive, albeit delayed. In the subsequent revelation of information pertaining to the use of inside debt for firms that disclosed no inside debt compensation in the first revelation, the stock price response is immediate and significantly positive. In the recent financial crisis, firms that use a combination of inside debt and equity in compensating their CEOs had better stock price performance than firms that pay their CEOs with equity, but no inside debt. Both groups of firms did not perform substantially different in post-crisis. During the crisis, among firms that use inside debt, firms that employ a debt bias in compensation (debt-to-equity compensation of the CEO exceeds the corporate leverage ratio) performed better than firms that employ an equity bias. Our evidence support Edmans and Liu (2011)'s theoretical propositions that optimal level of inside debt is positive, pure equity compensation is inefficient and, that a debt bias is desired when insolvency is likely. Findings have implications for firms and policymakers in terms of risk management through managerial compensation. We deduce that inside debt also enhances hedging possibilities for stock investors through stock selection and portfolio choice.

Download or read book Capital Structure Earnings Management and Risk of Financial Distress written by Pietro Gottardo and published by Springer. This book was released on 2018-09-24 with total page 103 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book analyzes the impacts that family control of firms has on capital structure choices, leverage and the risk of financial distress, earnings management practices, and the relation between accounting choices and firm market value. For these purposes, longitudinal data on Italian family and non-family non-financial firms are closely analyzed. The Italian setting is of special interest in this context because family businesses account for 94% of GDP, families are particularly committed to maintaining control of firms, and the economy is bank based rather than market based. The analyses draw on the socioemotional wealth approach, which emphasizes the importance of the stock of emotional value in family firms, in combination with financial theories such as Pecking Order Theory, Trade-off Theory, and Agency Theory. The findings cast significant new light on differences between family and non-family firms and the effects of different forms of family influence. The book will have broad appeal for academics, managers, practitioners, and policymakers.

Download or read book CEO Inside Debt and Insider Trading written by Eric R. Brisker and published by . This book was released on 2018 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt: Managerial compensation theory proposes that both equity- and debt-type compensation should be included in the optimal compensation contract in order to align managers' interests with those of both shareholders and debtholders of the firm. However, this reasoning also suggests that the two forms of compensation are directly in conflict with each other in that shareholders (debtholders) should respond negatively to debt-type (equity-type) compensation. In this study, we examine insider trading in order to determine how firm insiders react to CEO debt-type compensation. Despite existing theoretical predictions, we report that higher CEO debt-type compensation is associated with greater net purchasing of shares by firm insiders. This surprising finding is robust to using two different proxies for debt-type compensation as well as several different variations of a net insider purchasing measure, such as definitions based on opportunistic trades and trades by directors and officers only. The results also hold when we control for a host of alternative factors that affect trading decisions, including asset value uncertainty, which could render CEOs reluctant to take on inside debt. Further, we alleviate endogeneity concerns with the robust results of the instrumental variables tests we employ. Our findings indicate that well-informed insiders are receptive to increases in debt-type compensation, perhaps because they perceive the CEO's willingness to accept this unsecured promise of future pay as a positive signal to shareholders about the prospective viability of the firm.

Download or read book Earnings Quality written by Jennifer Francis and published by Now Publishers Inc. This book was released on 2008 with total page 97 pages. Available in PDF, EPUB and Kindle. Book excerpt: This review lays out a research perspective on earnings quality. We provide an overview of alternative definitions and measures of earnings quality and a discussion of research design choices encountered in earnings quality research. Throughout, we focus on a capital markets setting, as opposed, for example, to a contracting or stewardship setting. Our reason for this choice stems from the view that the capital market uses of accounting information are fundamental, in the sense of providing a basis for other uses, such as stewardship. Because resource allocations are ex ante decisions while contracting/stewardship assessments are ex post evaluations of outcomes, evidence on whether, how and to what degree earnings quality influences capital market resource allocation decisions is fundamental to understanding why and how accounting matters to investors and others, including those charged with stewardship responsibilities. Demonstrating a link between earnings quality and, for example, the costs of equity and debt capital implies a basic economic role in capital allocation decisions for accounting information; this role has only recently been documented in the accounting literature. We focus on how the precision of financial information in capturing one or more underlying valuation-relevant constructs affects the assessment and use of that information by capital market participants. We emphasize that the choice of constructs to be measured is typically contextual. Our main focus is on the precision of earnings, which we view as a summary indicator of the overall quality of financial reporting. Our intent in discussing research that evaluates the capital market effects of earnings quality is both to stimulate further research in this area and to encourage research on related topics, including, for example, the role of earnings quality in contracting and stewardship.

Download or read book Financial Reporting on Earnings Management written by David Onditi and published by GRIN Verlag. This book was released on 2019-09-23 with total page 9 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essay from the year 2017 in the subject Business economics - Accounting and Taxes, grade: A, University of Nairobi, language: English, abstract: This paper discusses the motives behind earnings management and explains some of the methods used by firms to manage their earnings. Earnings management has been defined differently by a number of scholars. It is important to note that there is a thin line between fraud and earnings management. Hamid, Hashim and Salleh citing the works of Brown, Perols and Lounge and Erickson, Hanlon and Maydew noted the difference in the definitions that are offered by the scholars. According to Perols and Lounge organizations will engage in fraud due to the constraints on earnings management. The research found out that the firms that had engaged in earnings management will be more likely to be involved in cases of fraud. Brown and Erickson et al noted that the difference between earnings management and fraud is that earnings management is usually within the scope of the generally accepted accounting principles (GAAP) while fraud is outside of the boundaries of GAAP. Earnings management has been defined as the manipulation of the financial statements and reports by the managers so that the firms can earn extra profit. It has also been defined as the action where the management of the organizations apply their own self-assessment in the communication of the financial information and transactions to modify the financial data for two main reasons: 1) influencing contractual businesses that solely rely on the financial information or 2) providing the stakeholders with a wrong impression about the financial position of the firm.