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.
| Original language | English |
|---|---|
| Number of pages | 50 |
| Journal | Accounting and Business Research |
| Early online date | 27 May 2022 |
| DOIs | |
| Publication status | Published - 27 May 2022 |
Bibliographical note
Publisher Copyright:© 2022 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group.
Keywords
- Conservatism
- financial reporting
- pay gap
- tournament incentives
- promotion
- senior management
- executive compensation
- corporate governance
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Dive into the research topics of 'The Effect of Pay Disparities within Top Management on Conservative Reporting'. Together they form a unique fingerprint.Projects
- 1 Finished
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Benjamin Meaker Distinguished Visiting Professorship 2022
Garcia Osma, B. (Principal Investigator) & Scapin, M. (Principal Investigator)
4/04/22 → 10/04/22
Project: Research
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