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Title: Managerial myopia, CEO compensation structure and earnigns management by R&D cuts
Other Titles: Jing li ren yuan duan qi xing wei, xin chou jie gou he tong guo jian shao yan jiu fa zhan fei yong jin xing de ying yu guan li
經理人員短期行為, 薪酬結構和通過減少研究發展費用進行的盈餘管理
Authors: He, Weidong (何衛東)
Department: Dept. of Accountancy
Degree: Doctor of Philosophy
Issue Date: 2004
Publisher: City University of Hong Kong
Subjects: Chief executive officers -- Salaries, etc
Corporate profits
Corporations -- Finance
Notes: CityU Call Number: HG4026.H485 2004
Includes bibliographical references (leaves 113-123)
Thesis (Ph.D.)--City University of Hong Kong, 2004
ix, 131 leaves ; 30 cm.
Type: Thesis
Abstract: 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. Analysis of a sample of 7,246 publicly traded U.S. companies shows that CEOs are more likely to cut R&D expenditure to meet earning targets when the percentage of cash-based compensation in their total compensation is high or increased, and that a change from a cash-dominated compensation scheme to a stock-dominated compensation scheme is negatively related to the likelihood of R&D cuts, suggesting that stock-based compensation may mitigate opportunistic R&D cuts. This study also finds that the association between CEO compensation structure and the likelihood of R&D cuts can be moderated by some governance mechanisms including CEO dominance, CEO ownership and anti-takeover provisions. Moreover, this study presents evidence that discretionary accruals are negatively related to the likelihood of R&D cuts for firms rewarding their managers with stock-dominated compensation schemes, indicating a substitution effect between earnings management by R&D cuts and by discretionary accounting choices. Those results are robust to a variety of sensitivity tests, including those that account for endogeneity between CEO compensation structure and firm-level discretionary R&D expenditures. Key Word: Managerial Myopia CEO Compensation Structure Earnings Management R&D Cuts
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