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Board Member Remuneration and Earnings Management: The Case of Portugal

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  • Catarina Gonçalves Dias

    (Accounting Department, Instituto Universitario de Lisboa (ISCTE-IUL), 1649-026 Lisboa, Portugal)

  • Inna Choban de Sousa Paiva

    (Accounting Department, Instituto Universitario de Lisboa (ISCTE-IUL), 1649-026 Lisboa, Portugal
    Business Research Unit (BRU-IUL), Instituto Universitário de Lisboa (ISCTE-IUL), 1649-026 Lisboa, Portugal)

  • Luísa Cagica Carvalho

    (Instituto Politécnico de Setúbal, Escola Superior de Ciências Empresariais, Resilience, 2914-503 Setúbal, Portugal)

Abstract

This study draws on agency theory and evaluates the effect of the remuneration structures of board members on earnings management, proxied by discretionary accruals. To achieve the objective, this study uses a multiple regression model and a hand-collected dataset of Portuguese-listed firms from 2015 to 2019. This study suggests that fixed board remuneration is associated with lower levels of earnings management, as opposed to variable remuneration of board members, which is strongly associated with a higher level of earnings management. The findings based on this study provide useful information to investors and regulators in evaluating the effect of board compensation structure on earnings management. Additionally, this study expands the corporate governance literature by examining an under-researched mechanism to address the agency problem.

Suggested Citation

  • Catarina Gonçalves Dias & Inna Choban de Sousa Paiva & Luísa Cagica Carvalho, 2024. "Board Member Remuneration and Earnings Management: The Case of Portugal," Administrative Sciences, MDPI, vol. 14(1), pages 1-20, January.
    • Handle: RePEc:gam:jadmsc:v:14:y:2024:i:1:p:20-:d:1323873
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    References listed on IDEAS

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    2. Mohammad M. Alhadab & Bassam Al-Own, 2017. "Earnings Management and Banks Performance: Evidence from Europe," International Journal of Academic Research in Accounting, Finance and Management Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Accounting, Finance and Management Sciences, vol. 7(4), pages 134-145, October.
    3. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    4. DeAngelo, Linda Elizabeth, 1981. "Auditor size and audit quality," Journal of Accounting and Economics, Elsevier, vol. 3(3), pages 183-199, December.
    5. Healy, Paul M., 1985. "The effect of bonus schemes on accounting decisions," Journal of Accounting and Economics, Elsevier, vol. 7(1-3), pages 85-107, April.
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