nep-acc New Economics Papers
on Accounting and Auditing
Issue of 2007‒09‒09
three papers chosen by
Alexander Harin
Modern University for the Humanities

  1. Board Committees, CEO Compensation, and Earnings Management By Christian Laux; Volker Laux
  2. Sustainability disclosure and reputation: a comparative study By Giovanna Michelon

  1. By: Christian Laux; Volker Laux
    Abstract: We analyze the effect of committee formation on how corporate boards perform two main functions: setting CEO pay and overseeing the financial reporting process. The use of performance-based pay schemes induces the CEO to manipulate earnings, which leads to an increased need for board oversight. If the whole board is responsible for both functions, it is inclined to provide the CEO with a compensation scheme that is relatively insensitive to performance in order to reduce the burden of subsequent monitoring. When the functions are separated through the formation of committees, the compensation committee is willing to choose a higher pay-performance sensitivity as the increased cost of oversight is borne by the audit committee. Our model generates predictions relating the board committee structure to the pay-performance sensitivity of CEO compensation, the quality of board oversight, and the level of earnings management.
    Keywords: Corporate Governance, Executive Compensation, Earnings Management, Board Oversight
    JEL: M41 D23 D73 G34 K22 L29
    Date: 2007–03
  2. By: Giovanna Michelon (Università di Padova)
    Abstract: This paper aims to explore the relationship between a company’s sustainability disclosure and its reputation. The sample consists of 57 companies in the Dow Jones Sustainability Index (DJSI) and a control group belonging to the Dow Jones Global Index (World1), matched on country, industry and size. The extent of sustainability disclosure is determined using the content analysis method performed via multimedia. The empirical research provides evidence that reputation does affect the extent of sustainability disclosure. Furthermore, results indicate that European companies disclose more than US companies. This paper is exploratory in nature as it investigates the effects of reputation on corporate sustainability disclosure (CSD). It also examines sustainability disclosure by type of information – strategic, financial, environmental and social – and it extends previous studies on CSD by concentrating on information released not only on annual reports, but also in multimedia, such as social reports, environmental reports and sustainability reports.
    Keywords: sustainability disclosure; reputation; legitimacy theory; USA, Europe, UK; content analysis
    JEL: M14 M41
    Date: 2007–09
  3. By: Batiz-Lazo, Bernardo
    Abstract: This article explores the manipulation of published financial reports in order to counter perceived unfavourable impact, on an entity, of newly introduced regulations. The article departs from the traditional analysis of asset depreciation in manufacturing or mining and the link between market efficiency and stock market performance. This by looking at the depreciation of fixed assets in a mutual financial organisation. The change in the depreciation of free-hold buildings was a reaction to limited possibilities for asset management, was taken in the context of substantial growth in mortgage assets and was not followed by any notification in the financial statements. Issues in favour and against qualifying are then analysed in the context of the mid-term performance of the building society as well as the performance of net reserve ratios at other major building societies. CHANGEMENT DE LA METHODE D'AMORTISSEMENT DES BÂTIMENTS : LE CAS DE LA SOCIÉTÉ DE CONSTRUCTION ANGLAISE CIRCA (1959) AVEC SES INCIDENCES EN TERMES FINANCIERS ET EN MATIERE DE GOUVERNANCE Résumé Cet article présente un cas de manipulation des rapports financiers visant à éviter une baisse du résultat comptable perçue comme défavorable. En dépit du lien posé habituellement entre l'information comptable retraitée et l'efficience du marché, l'organisation a changé le taux de d'amortissement de ses actifs sans toutefois en faire état dans ses comptes financiers. Ce changement de méthode d'amortissement des bâtiments intervenait dans un contexte limitant les possibilités de gestion des actifs, et de croissance significative des prêts sous hypothèques. Les problématiques de la certification des comptes sont examinées, de même que l'évolution à moyen terme de la performance de cette société de construction comparativement à ses concurrentes.
    Keywords: Keywords: Depreciation; asset management; building societies; United Kingdom; corporate governance. Mots clés: Amortissement; gestion de actifs; sociétés de construction; Grande-Bretagne; gouvernance d'entreprise.
    JEL: N24 M42
    Date: 2006–08

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