Prior studies show that linking executive compensation to current accounting performance provides incentive for CEOs to manage earnings by cutting R&D expenditure (e.g. Baber et al. (1991), Bushee (1998)). However, it has also been suggested that tying executive compensation with stock price mitigates opportunistic R&D cuts (e.g. Lambert and Larcker (1987)). This study contributes to this strand of literature by testing empirically whether CEO compensation structure in terms of the relative mix of cash-based vs. stock-based compensation affects R&D expenditure in firms that could reverse earning decreases with a reduction in R&D expenditure…
Contents
CHAPTER 1 INTRODUCTION
1.1 Motivation
1.2 Main Finding
1.3 Contribution
1.4 Overview
CHAPTER 2 LITERATURE AND HYPOTHESIS
2.1 Explanation for Earnings Management by R&D Cuts
2.2 Executive Compensation Components
2.3 R&D Cuts and CEO Compensation Structure
2.4 Change in CEO Compensation Structure
2.5 Influence of CEO Dominance and CEO Ownership
2.6 Impact of Anti-takeover Mechanisms
2.7 Earnings Management by Discretionary Accounting Choices
CHAPTER 3 RESEARCH METHODOLOGY
3.1 Defining Sub-samples
3.2 Model Specification
3.3 Change Regression
3.4 Measurement of CEO Dominance
3.5 Corporate Governance Score
3.6 Calculation of Discretionary Accruals
CHAPTER 4 SAMPLE DESCRIPTION
4.1 Data Source
4.2 Descriptive Statistics
CHAPTER 5 EMPIRICAL RESULTS
5.1 Main Result
5.2 Result for Change Regression
5.3 Moderating Effect of Corporate Governance
5.4 Substitution Effect of Earnings Management Methods
CHAPTER 6 SENSITIVITY TEST
6.1 Test for Simultaneous Determination
6.2 Institutional Ownership
6.3 CEO Tenure
6.4 Year-by-Year Result
6.5 Redefining Change in Compensation Structure
6.6 Alternative Measure of Discretionary Accruals
6.7 Re-examining Earnings Target
6.8 Result for R&D-Intensive Industry
6.9 Other Long-Term Investment
6.10 R&D Cuts and Earnings Quality
CHAPTER 7 SUMMARY AND FUTURE OPPORTUNITY
7.1 Summary of Findings
7.2 Caveat
7.3 Future Opportunit
BIBLIOGRAPHY
APPENDIX
ENDNOTES
Author: He, Weidong
Source: City University of Hong Kong
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