CEO and Outside Director Equity Compensation: Substitutes or Complements for Management Earnings Forecasts?

Hyung Tae Kim; Byungjin Kwak; Jaywon Lee; Inho Suk

doi:10.1080/09638180.2018.1473159

CEO and Outside Director Equity Compensation: Substitutes or Complements for Management Earnings Forecasts?

Hyung Tae Kim
, Byungjin Kwak
, Jaywon Lee
, Inho Suk

Accounting

California State University Fresno
Korea Advanced Institute of Science and Technology
Sejong University

Research output: Contribution to journal › Article › peer-review

12 Scopus citations

Abstract

This study examines how the equity compensation of chief executive officers (CEO) and that of outside directors affect management earnings forecasts (MFs) and the relationship between these two positions in terms of compensation. Our evidence reveals that CEO (director) equity compensation is positively associated with MF likelihood, frequency, and accuracy when director (CEO) equity compensation is not high. However, an increase in director (CEO) equity compensation is not effective in improving disclosure quality when the level of CEO (director) equity compensation is already high. These results suggest that the two incentive mechanisms act as substitutes when both are intensively used in the context of MF disclosure.

Original language	English
Pages (from-to)	371-393
Number of pages	23
Journal	European Accounting Review
Volume	28
Issue number	2
DOIs	https://doi.org/10.1080/09638180.2018.1473159
State	Published - Mar 15 2019

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10.1080/09638180.2018.1473159

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title = "CEO and Outside Director Equity Compensation: Substitutes or Complements for Management Earnings Forecasts?",

abstract = "This study examines how the equity compensation of chief executive officers (CEO) and that of outside directors affect management earnings forecasts (MFs) and the relationship between these two positions in terms of compensation. Our evidence reveals that CEO (director) equity compensation is positively associated with MF likelihood, frequency, and accuracy when director (CEO) equity compensation is not high. However, an increase in director (CEO) equity compensation is not effective in improving disclosure quality when the level of CEO (director) equity compensation is already high. These results suggest that the two incentive mechanisms act as substitutes when both are intensively used in the context of MF disclosure.",

author = "Kim, \{Hyung Tae\} and Byungjin Kwak and Jaywon Lee and Inho Suk",

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AU - Kim, Hyung Tae

AU - Kwak, Byungjin

AU - Lee, Jaywon

AU - Suk, Inho

PY - 2019/3/15

Y1 - 2019/3/15

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AB - This study examines how the equity compensation of chief executive officers (CEO) and that of outside directors affect management earnings forecasts (MFs) and the relationship between these two positions in terms of compensation. Our evidence reveals that CEO (director) equity compensation is positively associated with MF likelihood, frequency, and accuracy when director (CEO) equity compensation is not high. However, an increase in director (CEO) equity compensation is not effective in improving disclosure quality when the level of CEO (director) equity compensation is already high. These results suggest that the two incentive mechanisms act as substitutes when both are intensively used in the context of MF disclosure.

UR - https://www.scopus.com/pages/publications/85047382720

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ER -

CEO and Outside Director Equity Compensation: Substitutes or Complements for Management Earnings Forecasts?

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