Publication Type
Journal Article
Version
acceptedVersion
Publication Date
9-2015
Abstract
How to address managerial short-termism is an important issue for companies, regulators, and researchers. We examine the effect of CEO contractual protection, in the form of employment agreements and severance pay agreements, on managerial short-termism. We find that firms with CEO contractual protection are less likely to cut R&D expenditures to avoid earnings decreases and are less likely to engage in real earnings management. The effect of CEO contractual protection is both statistically and economically significant. We further find that this effect increases with the duration and monetary strength of CEO contractual protection. The cross-sectional analyses indicate that the effect is stronger for firms in more homogeneous industries and for firms with higher transient institutional ownership, as protection is particularly important for CEOs in these firms, and is stronger when there are weaker alternative monitoring mechanisms.
Keywords
employment agreement, severance pay agreement, managerial short-termism
Discipline
Accounting | Corporate Finance | Human Resources Management
Research Areas
Corporate Reporting and Disclosure
Publication
Accounting Review
Volume
90
Issue
5
First Page
1871
Last Page
1906
ISSN
0001-4826
Identifier
10.2308/accr-51033
Publisher
American Accounting Association
Citation
CHEN, Xia; CHENG, Qiang; LO, Alvis K.; and WANG, Xin.
CEO contractual protection and managerial short-termism. (2015). Accounting Review. 90, (5), 1871-1906.
Available at: https://ink.library.smu.edu.sg/soa_research/1378
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.2308/accr-51033
Comments
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