Chief Financial Officers’ Short‐ and Long‐term Incentive‐based Compensation and Earnings Management

Abstract

This study examines the association between chief financial officers’ (CFOs) short‐ and long‐term compensation and discretionary current and non‐current accruals. The CFO's cash bonus is used as a measure of short‐term incentives and shares plus options is used as a measure of long‐term incentives. The results show a significant and positive association between CFOs’ short‐term compensation and the absolute value of discretionary current accruals. The results also show a significant and positive association between CFOs’ long‐term compensation and the absolute value of discretionary non‐current accruals. STUDY provides evidence that the earnings management behaviour of CFOs is associated with type of CFO compensation.