Executive Compensation and Earning Management

Abstract

Given the growing complexity of business, the need for financial reporting to include more reliable information is increased. For this information to be relevant, they must be conducted in an implementation of an efficient system of control to ensure a high quality result. The directors of listed companies may be required to affect the quality of accounting earnings as their compensation depends. Therefore, it would be wise to examine the relationship between the elements of executive compensation and earning management. The objective of this paper is to examine one of the motivations that could encourage managers to manage the accounting results, namely the managerial remuneration. The results of this study show that executive compensation is determined by the requirements of earning management. Specifically, our litters indicate that total compensation is negatively related to the absolute value of accruals. This result confirms the theoretical hypothesis alignment of interests of executives with those of shareholders.