We examine the relationship between equity incentives and earnings management in the banking industry. By focusing on this regulated industry and using industry-specific earnings management proxies, we provide evidence on the impact of regulation on earnings management arising from chief executive officers' equity incentives. We find that bank managers with high equity incentives are more likely to manage earnings, but only when capital ratios are closer to the minimums required by regulators. This finding indicates that, in the banking industry, potential regulatory intervention induces, rather than mitigates, earnings management arising from equity incentives.
Banking, Earnings, Equity Incentives, Regulations
Accounting | Corporate Finance | Finance and Financial Management
Financial Performance Analysis
Journal of Accounting, Auditing and Finance
CHENG, Qiang; Warfield, Terry; and YE, Minlei.
Equity incentives and earnings management: Evidence from the banking industry. (2011). Journal of Accounting, Auditing and Finance. 26, (2), 317-349. Research Collection School Of Accountancy.
Available at: http://ink.library.smu.edu.sg/soa_research/824