Publication Type

Working Paper

Version

submittedVersion

Publication Date

5-2015

Abstract

In this paper, we examine the effect of managers’ pay duration on firms’ voluntary disclosures. Pay duration refers to the average period that it takes for managers’ annual compensation to vest. We hypothesize and find that pay duration can incentivize managers to provide more bad news earnings forecasts. This result holds after controlling for the level of stock-based compensation and the endogeneity of pay duration. In addition, we find that the effect of pay duration is more pronounced for firms with weaker governance and for firms with a more opaque information environment, where the marginal benefits of additional disclosures are higher. Our additional analyses indicate that managers with a longer pay duration issue more accurate earnings forecasts. Overall, our paper contributes to the literature by documenting that lengthening the vesting periods of managers’ compensation can induce managers to be more forthcoming with bad news.

Keywords

Voluntary disclosures, management forecasts, executive compensation, pay duration

Discipline

Accounting

Research Areas

Corporate Governance, Auditing and Risk Management

First Page

1

Last Page

50

Publisher

SMU School of Accountancy Research Paper Series, Paper 2015-28

City or Country

Singapore

Copyright Owner and License

Authors

Comments

Published in Journal of Business Finance and Accounting, 2020 November, DOI: 10.1111/jbfa.12516. Full text at https://ink.library.smu.edu.sg/soa_research/1893

Additional URL

https://ssrn.com/abstract=2372814

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