Does CEO’s compensation mitigate discretionary accruals? An analysis of publicly traded Brazilian banks

Authors

DOI:

https://doi.org/10.19094/contextus.2020.42452

Keywords:

discretionary accruals, banks, earnings management, quality of accounting information, CEO’s compensation

Abstract

This study objective to analyze the influence of CEO’s compensation on earnings management in Brazilian banking companies. We analyzed 17 banking companies that traded shares in B3 between 2010 and 2018. Data were analyzed using descriptive statistics and multivariate analysis using quantile regression. The results show that there was no difference in earnings management levels and executive compensation over the years, even in periods of economic recession (2015 and 2016). Moreover, evidence shows that companies with the highest levels of earnings management are sensitive to reduced manipulation practices through discretionary accruals when executive compensation is increased.

Author Biographies

Allison Manoel de Sousa, Universidade Federal do Paraná (UFPR)

Doutorando em Contabilidade pela Universidade Federal do Paraná - UFPR (início em 2020) e Mestre em Contabilidade pela Universidade Federal de Santa Catarina - UFSC (2018 - 2020) e Graduado em Ciências Contábeis pela Universidade Federal da Grande Dourados - UFGD (2014 - 2018). Técnico em Contabilidade pelo Centro Paula Souza - CPS (2012 - 2013). Atualmente é membro do Laboratório de Contabilidade Financeira da UFPR (início em 2020). Já participou como membro do Núcleo de Estudos em Contabilidade e Controladoria da UFSC (2019-2020). Tem interesse na área de pesquisa em contabilidade para usuários externos, especialmente sobre os temas: auditoria, qualidade da informação contábil, remuneração dos executivos, contabilidade e macroeconomia, relevância das informações contábeis.

Alex Mussoi Ribeiro, Universidade Federal de Santa Catarina (UFSC)

Professor da Universidade Federal de Santa Catarina (UFSC) onde atua no Departamento de Contabilidade (CCN), no Programa de Pós Graduação em Contabilidade (PPGC), no Programa de Pós Graduação em Controle de Gestão (PPGCG) e Coordena o Mestrado Profissional em Propriedade Intelectual e Transferência de Tecnologia para a Inovação (PROFNIT). Possui graduação em Ciências Contábeis pela Universidade Federal do Rio Grande do Sul - UFRGS (2003), Especialização em Controladoria e Contabilidade pela Universidade Federal do Rio Grande do Sul - UFRGS (2007), MBA em Normas Internacionais pela Fundação Instituto de Pesquisas Contábeis, Atuariais e Financeiras - FIPECAFI (2013), Mestrado em Contabilidade e Controladoria pela Universidade Federal de Santa Catarina - UFSC (2009) e Doutorado em Controladoria e Contabilidade pela Universidade de São Paulo - USP (2014). Possui experiência na área de Contabilidade financeira - IFRS, Análise de Riscos e Crédito, M&A, Due-diligence, Avaliação de Empresas, modelagem financeira com o uso de estatística e reorganizações societárias. É um dos coordenadores do Núcleo de Estudos em Auditoria (NEAUD) e participante do Laboratório de Contabilidade Internacional da USP. Atua como perito contábil registrado no CNPC, possui Certificação em IFRS do Association of Chartered Certified Accountants - ACCA da Inglaterra e faz parte do Conselho fiscal da FEESC, do Comitê de Auditoria Estatutário da SCGÁS e do Comitê de Auditoria do Banco Regional de Desenvolvimento do Extremo Sul (BRDE).

References

Acharya, V. V., & Volpin, P. F. (2010). Corporate governance externalities. Review of Finance, 14(1), 1-33. https://doi.org/10.1093/rof/rfp002

Aguiar, A. B. D., & Pimentel, R. C. (2017). Remuneração de executivos e desempenho no mercado brasileiro: relações contemporâneas e defasadas. Revista de Administração Contemporânea, 21(4), 545-568. https://doi.org/10.1590/1982-7849rac2017160228

Almadi, M., & Lazic, P. (2016). CEO incentive compensation and earnings management. Management Decision, 54(10), 2447-2461. https://doi.org/10.1108/MD-05-2016-0292

Baker, T., Collins, D., & Reitenga, A. (2003). Stock option compensation and earnings management incentives. Journal of Accounting, Auditing & Finance, 18(4), 557-582. https://doi.org/10.1177%2F0148558X0301800408

Balsam, S. (1998). Discretionary accounting choices and CEO compensation. Contemporary Accounting Research, 15(3), 229-252. https://doi.org/10.1111/j.1911-3846.1998.tb00558.x

Bergstresser, D., & Philippon, T. (2006). CEO incentives and earnings management. Journal of Financial Economics, 80(3), 511-529. https://doi.org/10.1016/j.jfineco.2004.10.011

Beuren, I. M., de Moura, G. D., & Theis, V. (2016). Remuneração dos executivos em empresas que realizaram combinação de negócios. Revista de Administração da UNIMEP, 14(2), 1-30. https://doi.org/10.15600/1679-5350/rau.v14n2p1-30

Burgstahler, D. C., Hail, L., & Leuz, C. (2006). The importance of reporting incentives: Earnings management in European private and public firms. The Accounting Review, 81(5), 983-1016. http://www.jstor.org/stable/4093095

Cameron, A. C., & Trivedi, P. K. (2009). Microeconometrics using stata (Vol. 5, p. 706). College Station, TX: Stata press.

Canay, I. A. (2011). A simple approach to quantile regression for panel data. The Econometrics Journal, 14(3), 368-386. https://doi.org/10.1111/j.1368-423X.2011.00349.x

Carvalho, L. N., & Salotti, B. M. (2013). Adoption of IFRS in Brazil and the consequences to accounting education. Issues in Accounting Education, 28(2), 235-242. https://doi.org/10.2308/iace-50373

Chemmanur, T. J., Cheng, Y., & Zhang, T. (2013). Human capital, capital structure, and employee pay: An empirical analysis. Journal of Financial Economics, 110(2), 478-502. https://doi.org/10.2139/ssrn.1099000

Chen, C. R., Steiner, T. L., & Whyte, A. M. (2006). Does stock option-based executive compensation induce risk-taking? An analysis of the banking industry. Journal of Banking & Finance, 30(3), 915-945. https://doi.org/10.1016/j.jbankfin.2005.06.004

Cheng, Q., & Warfield, T. D. (2005). Equity incentives and earnings management. The Accounting Review, 80(2), 441-476. http://www.jstor.org/stable/4093065

Consoni, S., Colauto, R. D., & de Lima, G. A. S. F. (2017). A divulgação voluntária e o gerenciamento de resultados contábeis: evidências no mercado de capitais brasileiro. Revista Contabilidade & Finanças, 28(74), 249-263. https://doi.org/10.1590/1808-057x201703360

Core, J. E., Holthausen, R. W., & Larcker, D. F. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics, 51(3), 371-406. https://doi.org/10.1016/S0304-405X(98)00058-0

Dechow, P. M., Sloan, R. G., & Sweeney, A. P. (1995). Detecting earnings management. Accounting Review, 70(2), 193-225. https://www.jstor.org/stable/248303

Ding, Y., Hope, O. K., Jeanjean, T., & Stolowy, H. (2007). Differences between domestic accounting standards and IAS: Measurement, determinants and implications. Journal of accounting and public policy, 26(1), 1-38. https://doi.org/10.1016/j.jaccpubpol.2006.11.001

Doyle, J. T., Ge, W., & McVay, S. (2007). Accruals quality and internal control over financial reporting. The Accounting Review, 82(5), 1141-1170. https://doi.org/10.2139/ssrn.789985

Duarte, F. C. L., Girão, L. F. D. A. P., & Paulo, E. (2017). Avaliando modelos lineares de value relevance: Eles captam o que deveriam captar? Revista de Administração Contemporânea, 21(spe), 110-134. https://doi.org/10.1590/1982-7849rac2017160202

Duru, A., Iyengar, R. J., & Zampelli, E. M. (2012). Performance choice, executive bonuses and corporate leverage. Journal of Corporate Finance, 18(5), 1286-1305. https://doi.org/10.1016/j.jcorpfin.2012.08.003

Eisenhardt, K. M. (1989). Agency theory: An assessment and review. Academy of Management Review, 14(1), 57-74. https://doi.org/10.2307/258191

Fahlenbrach, R., & Stulz, R. M. (2011). Bank CEO incentives and the credit crisis. Journal of Financial Economics, 99(1), 11-26. https://doi.org/10.1016/j.jfineco.2010.08.010

Farias, J. B., Ponte, V. M. R., Oliveira, M. C., & De Luca, M. M. M. (2014). Impactos da adoção das IFRS nas demonstrações consolidadas dos bancos listados na BM&FBOVESPA. Revista Universo Contábil, 10(2), 63-83. https://doi.org/10.4270/ruc.2014212

Fávero, L. P., & Belfiore, P. (2017). Manual de análise de dados: estatística e modelagem multivariada com Excel®, SPSS® e Stata®. Elsevier Brasil.

Fernandes, F. C., & Mazzioni, S. (2015). A correlação entre a remuneração dos executivos e o desempenho de empresas brasileiras do setor financeiro. Contabilidade Vista & Revista, 26(2), 41-64.

Freund, S., Latif, S., & Phan, H. V. (2018). Executive compensation and corporate financing policies: Evidence from CEO inside debt. Journal of Corporate Finance, 50, 484-504. https://doi.org/10.1016/j.jcorpfin.2017.10.002

Garen, J. E. (1994). Executive compensation and principal-agent theory. Journal of Political Economy, 102(6), 1175-1199. https://doi.org/10.1086/261967

Ge, W. (2009). Essays on real earnings management (Doctoral dissertation, McGill University).

Greene, W. H. (2000). Econometric Analysis. 4th edition. International edition, New Jersey: Prentice Hall, 201-215.

Guidry, F., Leone, A. J., & Rock, S. (1999). Earnings-based bonus plans and earnings management by business-unit managers. Journal of accounting and economics, 26(1-3), 113-142. https://doi.org/10.1016/S0165-4101(98)00037-8

Hagendorff, J., & Vallascas, F. (2011). CEO pay incentives and risk-taking: Evidence from bank acquisitions. Journal of Corporate Finance, 17(4), 1078-1095. https://doi.org/10.1016/j.jcorpfin.2011.04.009

Harris, J. D. (2009). What’s wrong with executive compensation? Journal of Business Ethics, 85(1), 147-156. https://doi.org/10.1007/s10551-008-9934-6

Haugen, R. A., & Senbet, L. W. (1981). Resolving the agency problems of external capital through options. The Journal of Finance, 36(3), 629-647. https://doi.org/10.2307/2327523

Hawkins, J., & Mihaljek, D. (2001). The banking industry in the emerging market economies: competition, consolidation and systemic stability: an overview. BIS papers, 4(4), 1-44.

Healy, P. (1985). The impact of bonus schemes on the selection of accounting principles. Journal of Accounting and Economics, 7(1-3), 85-107. https://doi.org/10.1016/0165-4101(85)90029-1

Hochberg, Y. V. (2012). Venture capital and corporate governance in the newly public firm. Review of Finance, 16(2), 429-480. https://doi.org/10.2139/ssrn.474542

Holthausen, R. W., Larcker, D. F., & Sloan, R. G. (1995). Annual bonus schemes and the manipulation of earnings. Journal of Accounting and Economics, 19(1), 29-74. https://doi.org/10.1016/0165-4101(94)00376-G

Instituto Brasileiro de Geografia e Estatística – IBGE (2018). Índices de Preços ao Consumidor Amplo – IPCA. 2018. https://www.ibge.gov.br/estatisticas/economicas/precos-e-custos/9256-indice-nacional-de-precos-ao-consumidor-amplo.html?=&t=downloads

Jackson, S. B., Lopez, T. J., & Reitenga, A. L. (2008). Accounting fundamentals and CEO bonus compensation. Journal of Accounting and Public Policy, 27(5), 374-393. https://doi.org/10.1016/j.jaccpubpol.2008.07.006

Jensen, M. C., & Meckling, W. H. (1979). Theory of the firm: Managerial behavior, agency costs, and ownership structure. In Economics social institutions (pp. 163-231). Springer, Dordrecht.

Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193-228. https://doi.org/10.2307/2491047

Kolasinski, A. C., & Yang, N. (2018). Managerial myopia and the mortgage meltdown. Journal of Financial Economics, 128(3), 466-485. https://doi.org/10.1016/j.jfineco.2017.03.010

Kyriacou, K., & Mase, B. (2006). The adverse consequences of share-based pay in risky companies. Journal of Management & Governance, 10(3), 307-323. https://doi.org/10.1007/s10997-006-9002-5

Laux, C., & Laux, V. (2009). Board committees, CEO compensation, and earnings management. The Accounting Review, 84(3), 869-891. https://www.jstor.org/stable/27784197

Lei nº 11638, de 28 de dezembro de 2007 (2007). Brasília, DF. http://www.planalto.gov.br/ccivil_03/_ato2007-2010/2007/lei/l11638.htm

Lei nº 11941, de 27 de maio de 2009 (2009). Brasília, DF. http://www.planalto.gov.br/ccivil_03/_Ato2007-2010/2009/Lei/L11941.htm

Lei nº 6404, de 15 de dezembro de 1976 (1976). Brasília, DF. http://www.planalto.gov.br/ccivil_03/LEIS/L6404consol.htm

Li, L., & Kuo, C. S. (2017). CEO equity compensation and earnings management: The role of growth opportunities. Finance Research Letters, 20, 289-295. https://doi.org/10.1016/j.frl.2016.10.013

Li, M. Y. L., Yang, T. H., & Yu, S. E. (2015). CEO stock‐based incentive compensation and firm performance: a quantile regression approach. Journal of International Financial Management & Accounting, 26(1), 39-71. https://doi.org/10.1111/jifm.12022

Li, Y., & Singal, M. (2019). Firm Performance in the Hospitality Industry: Do CEO Attributes and Compensation Matter? Journal of Hospitality & Tourism Research, 43(2), 272-282. https://doi.org/10.1177%2F1096348018776453

Lopes, A. B. (2011). Teaching IFRS in Brazil: news from the front. Accounting Education, 20(4), 339-347. https://doi.org/10.1080/09639284.2011.555946

Lopes, I. F., Gasparetto, V., Schnorrenberger, D., & Lunkes, R. J. (2017). Relação do desempenho financeiro e dos riscos operacionais na remuneração de executivos de empresas brasileiras com ADRs. Contabilidade Vista & Revista, 28(3), 22-52.

Lopes, I. F., Kaveski, I. D. S., Beuren, I. M., & Theiss, V. (2019). Remuneração dos executivos versus estrutura de capital. Gestão & Regionalidade, 35(106), 177-196. https://doi.org/10.13037/gr.vol35n106.5342

Murphy, K. J. (1999). Executive compensation. Handbook of Labor Economics, 3, 2485-2563.

Ozdemir, O., Kizildag, M., & Upneja, A. (2013). Does risk matter in CEO compensation contracting? Evidence from US restaurant industry. International Journal of Hospitality Management, 34, 372-383. https://doi.org/10.1016/j.ijhm.2012.11.012

Papa, G., & Speciale, B. (2011). Financial leverage and managerial compensation: Evidence from the UK. Research in Economics, 65(1), 36-46.

Rodrigues, R. M. R. C., Melo, C. L. L. D., & Paulo, E. (2019). Gerenciamento de Resultados e Nível dos Accruals Discricionários Trimestrais no Mercado Acionário Brasileiro. BBR. Brazilian Business Review, 16(3), 297-314. https://doi.org/10.15728/bbr.2019.16.3.6

Ross, S. A. (1973). The economic theory of agency: The principal's problem. The American Economic Review, 63(2), 134-139. https://www.jstor.org/stable/1817064

Scott, W. R. (2009). Financial Accounting Theory (Vol. 5). Canada: Prentice Hall.

Shaw, K. W., & Zhang, M. H. (2010). Is CEO cash compensation punished for poor firm performance? The Accounting Review, 85(3), 1065-1093. https://doi.org/10.2308/accr.2010.85.3.1065

Shuto, A. (2007). Executive compensation and earnings management: Empirical evidence from Japan. Journal of International Accounting, Auditing and Taxation, 16(1), 1-26. https://doi.org/10.1016/j.intaccaudtax.2007.01.004

Silva, A. F. D., Weffort, E. F. J., Flores, E. D. S., & Silva, G. P. D. (2014). Earnings management and economic crises in the Brazilian capital market. Revista de Administração de Empresas, 54(3), 268-283. https://doi.org/10.1590/S0034-759020140303

Sincerre, B. P., Sampaio, J. O., Famá, R., & Santos, J. O. D. (2016). Emissão de dívida e gerenciamento de resultados. Revista Contabilidade & Finanças, 27(72), 291-305. https://doi.org/10.1590/1808-057x201601660

Smith Jr, C. W., & Watts, R. L. (1982). Incentive and tax effects of executive compensation plans. Australian Journal of Management, 7(2), 139-157. https://doi.org/10.1177/031289628200700204

Smith, C. W., & Stulz, R. M. (1985). The determinants of firms' hedging policies. Journal of Financial and Quantitative Analysis, 20(4), 391-405. https://doi.org/10.2307/2330757

Sousa, A. M., Monteiro, J. J., Rengel, R., & Lunkes, R. J. (2019). Remuneração dos Executivos e Estrutura de Capital do Setor Bancário na B3/Compensation of Managers and the Capital Structure of the Banking Sector in B3. Revista FSA (Centro Universitário Santo Agostinho), 16(2), 59-79. https://doi.org/10.12819/2019.16.2.4

Watts, R. L., & Zimmerman, J. L. (1986). Positive Accounting Theory. Prentice Hall.

Wooldridge, J. M. (2016). Introductory Econometrics: A modern approach. Nelson Education.

Zha, Y., Liang, N., Wu, M., & Bian, Y. (2016). Efficiency evaluation of banks in China: A dynamic two-stage slacks-based measure approach. Omega, 60, 60-72. https://doi.org/10.1016/j.omega.2014.12.008

Published

2020-04-13

How to Cite

Sousa, A. M. de, & Ribeiro, A. M. (2020). Does CEO’s compensation mitigate discretionary accruals? An analysis of publicly traded Brazilian banks. Contextus - Contemporary Journal of Economics and Management, 18, 25–38. https://doi.org/10.19094/contextus.2020.42452

Issue

Section

Articles