Ceos on the edge

Earnings manipulation and stock-based incentive misalignment

Xiaomeng Zhang, Kathryn M. Bartol, Ken G. Smith, Michael D. Pfarrer, Dmitry M. Khanin

Research output: Contribution to journalArticle

112 Citations (Scopus)

Abstract

Synthesizing agency theory and prospect theory, we examined the effects of stock-based incentives on CEO earnings manipulation behaviors. In analyses of data compiled from the public companies listed in Compustat's Executive Compensation Database and a U.S. General Accounting Office restatements database, we found that CEOs were more likely to manipulate firm earnings when they had more out-of-the-money options and lower stock ownership. Firm performance and CEO tenure interacted with out-of-the-money options and ownership to influence CEO earnings manipulation behaviors. Our findings inform agency-based views by providing evidence that, under certain conditions, stock-based managerial incentives lead to incentive misalignment. Copyright of the Academy of Management, all rights reserved.

Original languageEnglish
Pages (from-to)241-258
Number of pages18
JournalAcademy of Management Journal
Volume51
Issue number2
Publication statusPublished - Apr 2008
Externally publishedYes

Fingerprint

Earnings manipulation
Incentives
Chief executive officer
Misalignment
Industry
Ownership
Data base
Prospect theory
Executive compensation
Listed companies
Managerial incentives
CEO tenure
Restatements
Agency theory
Firm performance
Compensation and Redress

ASJC Scopus subject areas

  • Business and International Management
  • Management of Technology and Innovation
  • Strategy and Management
  • Business, Management and Accounting(all)

Cite this

Zhang, X., Bartol, K. M., Smith, K. G., Pfarrer, M. D., & Khanin, D. M. (2008). Ceos on the edge: Earnings manipulation and stock-based incentive misalignment. Academy of Management Journal, 51(2), 241-258.

Ceos on the edge : Earnings manipulation and stock-based incentive misalignment. / Zhang, Xiaomeng; Bartol, Kathryn M.; Smith, Ken G.; Pfarrer, Michael D.; Khanin, Dmitry M.

In: Academy of Management Journal, Vol. 51, No. 2, 04.2008, p. 241-258.

Research output: Contribution to journalArticle

Zhang, X, Bartol, KM, Smith, KG, Pfarrer, MD & Khanin, DM 2008, 'Ceos on the edge: Earnings manipulation and stock-based incentive misalignment', Academy of Management Journal, vol. 51, no. 2, pp. 241-258.
Zhang X, Bartol KM, Smith KG, Pfarrer MD, Khanin DM. Ceos on the edge: Earnings manipulation and stock-based incentive misalignment. Academy of Management Journal. 2008 Apr;51(2):241-258.
Zhang, Xiaomeng ; Bartol, Kathryn M. ; Smith, Ken G. ; Pfarrer, Michael D. ; Khanin, Dmitry M. / Ceos on the edge : Earnings manipulation and stock-based incentive misalignment. In: Academy of Management Journal. 2008 ; Vol. 51, No. 2. pp. 241-258.
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