Home > Research > Publications & Outputs > The Effect of Pay Disparities within Top Manage...

Electronic data

  • Gad_Nguyen_Scapin_Tournaments_2022

    Accepted author manuscript, 1.14 MB, PDF document

    Available under license: CC BY: Creative Commons Attribution 4.0 International License

Links

Text available via DOI:

View graph of relations

The Effect of Pay Disparities within Top Management on Conservative Reporting

Research output: Contribution to Journal/MagazineJournal articlepeer-review

Published
Close
<mark>Journal publication date</mark>7/06/2023
<mark>Journal</mark>Accounting and Business Research
Issue number4
Volume53
Number of pages27
Pages (from-to)478-504
Publication StatusPublished
Early online date22/05/22
<mark>Original language</mark>English

Abstract

We study the effect of the pay gap between the chief executive officer (CEO) and the next layer of executives in the top management team (TMT)—a proxy for promotion-based tournament incentives—on conditional conservatism in financial reporting. We find that higher levels of tournament incentives are associated with less conservative financial reports. Our results hold in an instrumental variable (IV) analysis and regressions using alternative measures of both pay gap and accounting conservatism. Furthermore, we find that senior executives’ engagement in tournaments for promotion is affected by their perceived probability of success. Specifically, the negative relationship between the pay gap and conservatism is stronger (weaker) when the CEO is more (less) likely to be replaced. Overall, our results indicate that pay disparities within the TMT play an important role in financial reporting.