The Effect of Short and Long-term Incentive-based Compensation on Earnings Management with Regard to Institutional Shareholders

Akhgar, Mohammad Omid; Ebrahimi, Jamil

doi:10.22055/jiar.2017.20479.1084

The Effect of Short and Long-term Incentive-based Compensation on Earnings Management with Regard to Institutional Shareholders

Document Type : Original Article

Authors

Mohammad Omid Akhgar ¹

Jamil Ebrahimi ²

¹ Assistant Professor in Accounting, University of Kurdistan, Sanandaj, Iran

² M.A. Student of Accounting, University of Kurdistan, Sanandaj, Iran

10.22055/jiar.2017.20479.1084

Abstract

Manipulation of earnings by managers is one way to achieve the expected earning and manager’s compensation is one of the most incentives to do it. Institutional shareholders are one of the most effective observers of financial performance. The purpose of this study is to investigate the relationship between compensation incentives of the managrmrnt board and earnings management with regard to institutional investors of firms listed on TSE. Following a descriptive and applied method and using the systematic sampling, 191 firms were selected as a final sample during 1387-1393 which in general 1337 firm-years observations were considered in analysis of the study hypotheses. To survey the relationship between the variables, multivariable regression was used by OLS approach. Also, in order to analyze the data we used Excel and Eviews and to test the hypotheses we used Panel Data approach. The results show that short- and long-term incentive-based compensations with regard to institutional shareholders have a negative relationship with discretionary current and non-current accruals respectively. Also, results indicate that existence of institutional shareholders is effective in relationship between short- and long-term incentive-based compensations and earnings management.

Keywords

Short-term incentive-based compensation

Long-term incentive-based compensation

Discretionary current accruals

Discretionary non-current accruals

Earnings management

Institutional shareholders