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The impacts of accrual-based and real earnings management on executive compensation: evidence from Chinese public firms in the private sector

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  • Fangzhao Zhou
  • Lei Wang
  • Zenan Zhang
  • Yunbi An

Abstract

This paper investigates whether high CFO or CEO compensation follows earnings management practices in Chinese public firms in the private sector. We find that while accrual-based earnings management does not impact executive compensation, real earnings management leads to high executive compensation. In addition, the effect of real earnings management is particularly strong for CEO pay, consistent with the notion that CEO pressure is the key driver of earnings management. Moreover, we find that this association is more pronounced for firms with a powerful CEO as well as for firms with a large wedge between control and cash flow rights.

Suggested Citation

  • Fangzhao Zhou & Lei Wang & Zenan Zhang & Yunbi An, 2018. "The impacts of accrual-based and real earnings management on executive compensation: evidence from Chinese public firms in the private sector," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 25(1-2), pages 128-144, January.
    • Handle: RePEc:taf:raaexx:v:25:y:2018:i:1-2:p:128-144
    DOI: 10.1080/16081625.2016.1222296
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    Cited by:

    1. Hu, Fang & Kusnadi, Yuanto & Wang, Jiwei & Wang, Yujie, 2022. "Insider trading restrictions and real activities earnings management: International evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    2. Manish Kumar & Madhu Vij & Rishabh Goswami, 2021. "Effect of Real Earnings Management on Firm Performance: Evidence from India," Vision, , vol. 27(3), pages 386-396, June.

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