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Wilfrid Laurier University Leaf
December 21, 2014
 
 
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WLU

School of Business & Economics

CPA/Laurier Centre Speaker Series - Duane Kennedy

Target Ownership Plans and Earnings Management
Jun 20/14

Date: Jun 20/14
Time: 10:30
Location: P1017
Cost: Free

Abstract:

We examine the determinants of target ownership plans and their

association with earnings management. We find that firms adopt target ownership plans

in response to poor performance, to mitigate moral hazard concerns, and in response to

peer pressure. Our analyses show that firms engage in less accruals and real earnings

management up to two years after plan adoption. Additionally, we find that the reduction

in accruals management is concentrated in high probability adoption firms (as determined

by performance, moral hazard, governance, capital market and peer-firm characteristics),

but is insignificant for low probability adoption firms. Our findings are consistent with

the argument that target ownership plans align CEOs’ incentives with shareholders’ such

that they result in more truthful reporting. There is limited evidence that they reduce

short-termism in operating decisions.

Contact: Karen Cleaver
Email: kcleaver@wlu.ca
Phone: 519-884-0710 ext.2059

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