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Are CEOs incentivized to shelter good information?
Author(s) -
Feng Hongrui,
Jia Yuecheng
Publication year - 2021
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12249
Subject(s) - incentive , earnings , cash flow , earnings management , business , volatility (finance) , agency (philosophy) , coupon , stock (firearms) , accrual , stock options , information asymmetry , actuarial science , economics , accounting , finance , microeconomics , mechanical engineering , philosophy , epistemology , engineering
Abstract Prior theoretical studies on the agency problem hold different opinions from the empirical literature on two questions: (a) Are CEOs incentivized to shelter good information? (b) Are CEOs incentivized to evenly shelter good and bad information? This paper demonstrates that CEOs with high pay‐performance incentives tend to successfully shelter good information rather than bad information. Furthermore, CEOs with high pay‐performance incentives shelter good information by using real earnings management and textual manipulation but not accrual‐based earnings management. These asymmetric information manipulation behaviors help to decrease corporate cash flow volatility as well as the jump and crash risk on the stock market.