Earnings Management Constraints in The UK       and The US: The Moderating Role of CEO Compensation in Low vs. High Cash Holding Firms

Abdelwahed, Ghada Mohamed Mokhtar Gaber; Hussainey, Khaled

doi:10.21608/aljalexu.2024.345482

Earnings Management Constraints in The UK and The US: The Moderating Role of CEO Compensation in Low vs. High Cash Holding Firms

Document Type : Original Article

Authors

¹ Assistant Professor of Accounting and Financial Management, College of Management, Arab Academy for Science, Technology and Maritime Transport, Alex, Egypt

² Professor of Accounting and Financial Management, Faculty of Business and Law University of Portsmouth, UK

10.21608/aljalexu.2024.345482

Abstract

This paper analyses the moderating role of CEO compensation on the associations between earnings management and three factors (audit quality, institutional ownership, and concentrated ownership) within low cash holding firms (LCASH) vs high cash holding firms (HCASH). This study is a comparative analysis conducted on UK and US-listed firms, throughout the period from 2005 till 2016, to analyse the moderation effect of CEO compensation, since CEOs play different roles and have different responsibilities on which they are compensated differently. This study reveals the effectiveness of the incentive power of CEO compensation, in line with the controlling power of other corporate governance mechanisms in restraining EM practices. Our analysis shows that in low cash holding firms, CEO compensation, audit quality, and the joint effect of CEO compensation with ownership concentration are proved to add value in restraining EM practices in the UK-listed firms, while none of the corporate governance mechanisms or the moderation effects proves to be effective in reducing managerial opportunism within high cash holding firms within the UK or US-listed firms holding different levels of cash.

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