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Earnings Smoothing, Executive Compensation, and Corporate Governance: Evidence From the Property–Liability Insurance Industry
Author(s) -
Eckles David L.,
Halek Martin,
He Enya,
Sommer David W.,
Zhang Rongrong
Publication year - 2011
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2011.01417.x
Subject(s) - corporate governance , executive compensation , earnings management , business , earnings , accounting , compensation (psychology) , liability , smoothing , stock (firearms) , finance , mechanical engineering , psychology , computer science , psychoanalysis , engineering , computer vision
Unlike studies that estimate managerial bias, we utilize a direct measure of managerial bias in the U.S. insurance industry to investigate the effects of executive compensation and corporate governance on firms’ earnings management behaviors. We find managers receiving larger bonuses and stock awards tend to make reserving decisions that serve to decrease firm earnings. Moreover, we examine the monitoring effect of corporate board structures in mitigating managers’ reserve manipulation practices. We find managers are more likely to manipulate reserves in the presence of particular board structures. Similar results are not found when we employ traditional estimated measures of managerial bias.