ATJ Asian Tax Journal

Asian Tax Journal

Print ISSN 1738-3323 Online ISSN 2733-9270

A Study on the Relevance between Compensation Committee Characteristics and Real Activity Earnings Management

  • CHOI YUWON Yeungnam University
  • MOON SANGHYUK Yeungnam University

Asian Tax Journal Vol. 13 No. 3 (2012), pp. 281-314

Abstract

This study empirically investigates the effect of compensation committee on earnings management. Especially, we analyzed relation between compensation committee and real－activity earnings management, and examined relation between characteristics of compensation committee and realactivity earnings management. We classify characteristics of compensation committee into independence, competence, and activity level. The empirical findings by 2,555 listed firms except for financial institutions on Korea Stock Exchange market(2006～2010) are as follows. First, the level of earnings management is significantly lower for firms with compensation committee than firms without it. Second, the level of earnings management of firms with independent compensation committee(as proxied by the rate of outside directors, the rate of gray directors, whether CEO is include in compensation committee and Size of compensation committee) is significantly lower than firms without it. Finally, the level of earnings management of firms with active compensation committee(as proxied by holding number of times of the compensation committee) is significantly lower than firms without it. This study has some meanings to offer the direct role of compensation committee on earnings management.

Keywords

  • CEO compensation
  • compensation committee
  • earnings management
  • quality of compensation committee
  • real－activity earnings management

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