The Dark Side of Industry Tournament Incentives

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review

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Original languageEnglish
Publication statusPublished - Jul 2019

Conference

Title2019 China International Conference in Finance (CICF)
LocationSofitel Guangzhou Sunrich
PlaceChina
CityGuangzhou
Period9 - 12 July 2019

Abstract

We document distortions in corporate disclosure driven by industry tournament incentives, defined as a CEO’s pay gap relative to the highest CEO pay among industry peers. Controlling for CEOfirm pair fixed effects, we find that firms run by CEOs with stronger industry tournament incentives engage in more aggressive earnings manipulation, measured by a higher propensity of meeting or narrowly beating consensus earnings forecasts, larger abnormal accruals, and higher probabilities of committing financial misrepresentation and restating earnings. The evidence is concentrated in cases where ex ante CEOs are more likely to participate in or win the industry tournament, and where agency problems are more severe. Conditional on firm performance, CEOs with stronger industry tournament incentives also disclose positive (negative) more (less) frequently. Our findings imply that industry tournaments can create perverse managerial incentives in corporate disclosure decisions, and that one firm’s executive compensation policy can generate negative externality for other firms’ disclosure practice.

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Citation Format(s)

The Dark Side of Industry Tournament Incentives. / Huang, Qianqian; Jiang, Feng; Xie, Fei.

2019. Paper presented at 2019 China International Conference in Finance (CICF), Guangzhou, China.

Research output: Conference Papers (RGC: 31A, 31B, 32, 33)32_Refereed conference paper (no ISBN/ISSN)peer-review