The relation between CEO equity incentives and the quality of accounting disclosures: New evidence
Charles A. Dice Center Working Paper No. 2017-02
50 Pages Posted: 25 Jan 2017 Last revised: 19 Jan 2021
Date Written: DECEMEBER 08, 2020
Abstract
This paper provides new evidence on the negative relation between CEO equity incentives and accounting disclosure quality. We analyze a comprehensive set of disclosure quality variables, including discretionary accruals quality, the quantity and quality of voluntary disclosures, fineness of reported financial statement information, and the narrative quality of regulatory filings, and use them to create information disclosure quality indices. We address the potential endogeneity of CEO equity incentives by conducting two-stage least squares/IV models and natural experiments created by situations in which there is an exogenous shock to the use or value of CEO stock options. Our results are robust to subsample analyses and to alternative measures of the incentives created by CEO options.
Keywords: Accounting disclosure quality; Readability; Textual analysis; Equity incentives; CEO stock options; Vega.
JEL Classification: D22; J33; J41; M40; M52
Suggested Citation: Suggested Citation