| Summary: | 碩士 === 靜宜大學 === 財務金融學系 === 101 === The incentive compensation is used to reduce the agency problem in firms, however, it has its dark side since it might motivate CEO to manage earnings. This study focuses on the effect of incentive pay on earnings management in banking industry. We examine whether CEO incentive pay has any influence on reported earnings; furthermore, we investigate above relationships by dividing the incentive pay plan into short-term incentives and long-term incentives.
This study uses 231 U.S. commercial banks during 1992 to 2011 as sample to investigate the effect of incentive pays on bank’ s earnings management. The OLS model and the logistic regression model are used to examine the extent and the probability of the influence of incentive pays on bank’s earnings management.
The OLS empirical results show that CEO incentive pay is significantly and positively related to banks’ earnings management, that is, banks with more CEO incentive pay do increase the level of earnings management, however, long-term incentive plans have negative relationship with banks’ earnings management. Moreover, from logistic regression results, we find that greater bonus and stock option being exercised at the current year will have negative relationship to manage the earnings upward, that is, bank’s CEO is less likely to manage earnings upward when CEO has more bonus pay and stock option exercised at the current year.
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