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Effect of mandatory pro forma earnings disclosure on the relation between CEO share bonuses and firm performance

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  • Chii-Shyan Kuo
  • Jow-Ran Chang
  • Shih-Ti Yu

Abstract

This paper examines the effect of mandatory pro forma earnings disclosure on the alignment of CEO share bonuses and firm performance (i.e., annual stock returns). Using 6,583 executive-level observations from 986 non-financial firms in Taiwan over the period 1999–2004, we find a significant shift in the CEO share bonus pay-earnings relation caused by a marked reduction in bonus shares after the new disclosure rule becomes effective. The change in CEO compensation structure in turn leads to a closer link between CEO stock bonuses and annual stock returns. The result suggests that a more transparent earnings disclosure could positively affect board choices regarding compensation arrangements, thus inducing a better convergence of manager and shareholder interests. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Chii-Shyan Kuo & Jow-Ran Chang & Shih-Ti Yu, 2013. "Effect of mandatory pro forma earnings disclosure on the relation between CEO share bonuses and firm performance," Review of Quantitative Finance and Accounting, Springer, vol. 40(2), pages 189-215, February.
    • Handle: RePEc:kap:rqfnac:v:40:y:2013:i:2:p:189-215
    DOI: 10.1007/s11156-011-0272-x
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    More about this item

    Keywords

    Stock bonus; Pay-performance relation; Pro forma earnings; CEO compensation; J31; M41;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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