The Effect of Pay Disparities within Top Management on Conservative Reporting

Gad, Mahmoud and Nguyen, Trang and Scapin, Mariano (2022) The Effect of Pay Disparities within Top Management on Conservative Reporting. Accounting and Business Research. ISSN 0001-4788

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Abstract

We study the effect of the pay gap between the chief executive officer (CEO) and the next layer of executives in the top management team (TMT)—a proxy for promotion-based tournament incentives—on conditional conservatism in financial reporting. We find that higher levels of tournament incentives are associated with less conservative financial reports. Our results hold in an instrumental variable (IV) analysis and regressions using alternative measures of both pay gap and accounting conservatism. Furthermore, we find that senior executives’ engagement in tournaments for promotion is affected by their perceived probability of success. Specifically, the negative relationship between the pay gap and conservatism is stronger (weaker) when the CEO is more (less) likely to be replaced. Overall, our results indicate that pay disparities within the TMT play an important role in financial reporting.

Item Type:
Journal Article
Journal or Publication Title:
Accounting and Business Research
Additional Information:
This is an Accepted Manuscript of an article published by Taylor & Francis in Accounting and Business Research on 27/05/2022, available online: http://www.tandfonline.com/10.1080/00014788.2022.2056119
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/1400/1402
Subjects:
ID Code:
167674
Deposited By:
Deposited On:
18 Mar 2022 16:35
Refereed?:
Yes
Published?:
Published
Last Modified:
22 Nov 2022 11:14