Flashcards in Internal Governance and Real Earnings Management Deck (5)
Deﬁnition of real earnings management by Cheng, Lee..
management actions that deviate from normal business practices, undertaken with the primary objective of meeting certain earnings thresholds
Why key subordinate executives usually care more about the long-term ﬁrm value than the CEO?
1) some of these executives desire to become the CEO in the future
2) executives have more to lose relative to their total wealth from corporate underperformance than the CEO. They are usually younger and have more remaining years of employment.
3) a manager’s outside opportunity wage depends on other managers’, including the CEO’s, actions and ﬁrm performance
The effectiveness of internal governance depends on ... (2)
1) the decision horizon of key subordinate executives 2) the inﬂuence they have on the CEO
Main Finding of Cheng, Lee..
The extent of real earnings management decreases with subordinate executives’ horizon and relative compensation