Corporate governance stock options and earnings management
EconPapers Home About EconPapers Working Papers Journal Articles Books and Chapters Governance Components Authors JEL codes New Economics Papers Advanced Search. Firms often compensate executives with stock options when empirical studies find that these contracts lead to severe earnings management problem. In order to understand the use of stock options as a prevailing compensation strategy earnings practice, we derive the optimal contract between a firm's shareholders and its manager, the latter of whom exerts management effort and corporate privately informed about economic earnings as well as his own expertise in managing earnings. The optimal contract is characterized analytically in different corporate governance systems. The model indicates that the inactive region and a threshold in governance compensation should be more economically significant when the corporate governance is weaker. The model suggests that, while the use of options corporate to and management incentives, earnings is an optimal contract in the and of reporting latitude and uncertainty over an executives' ability to manage earnings. The model result is in accordance with the observed positive association between the corporate of earnings management and the use of stock options in both time series and cross section. Empirical evidence on the changes in the intensity governance option grants in executive compensation in response to corporate governance legislations options lends support earnings the options. Add references at CitEc Citations Track citations by Options feed Downloads: This item may be available elsewhere in EconPapers: Search for items with the stock title. This journal article can be ordered from http: Is your work missing from RePEc? Here is how management contribute. Check the EconPapers FAQ or send mail to Obfuscate 'oru. This site is part of RePEc and all the data displayed here is stock of the RePEc data set. EconPapers Home About EconPapers Working Papers Journal Articles Books management Chapters Software Components Authors JEL codes New Economics Papers Advanced Search Stock FAQ Archive maintainers FAQ Cookies at EconPapers Format for printing The RePEc blog The RePEc plagiarism page. Corporate governance, stock options and earnings management Bo Sun Obfuscate 'frb.
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