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Description
This study provides new evidence on the choice of performance measures used in dual-class firms to incentivize CEOs. The choice of performance measures is informative about the extent to which the board of directors focuses CEO efforts on firms' long-term versus short-term objectives. To empirically operationalize performance evaluation horizon, I

This study provides new evidence on the choice of performance measures used in dual-class firms to incentivize CEOs. The choice of performance measures is informative about the extent to which the board of directors focuses CEO efforts on firms' long-term versus short-term objectives. To empirically operationalize performance evaluation horizon, I measure the length of the performance evaluation period in CEO stock awards, the use of stock-based measures, and the use of peer-based measures. I collect data on 419 dual-class firms and match them with a control group of single-class firms. I find that market-based metrics are less likely to be used by dual-class firms relative to single-class firms. In addition, I find that peer-based measures are much less common for dual-class than single-class firms. These findings suggest that dual-class firms shield their executives from short-term market pressures and design stock compensation contracts that deemphasize volatile stock prices.
ContributorsLi, Ji (Author) / Matejka, Michal (Thesis advisor) / Hwang, Yuhchang (Committee member) / Reckers, Philip (Committee member) / Arizona State University (Publisher)
Created2014
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Description
Executive compensation is broken into two parts: one fixed and one variable. The fixed component of executive compensation is the annual salary and the variable components are performance-based incentives. Clawback provisions of executive compensation are designed to require executives to return performance-based, variable compensation that was erroneously awarded in the

Executive compensation is broken into two parts: one fixed and one variable. The fixed component of executive compensation is the annual salary and the variable components are performance-based incentives. Clawback provisions of executive compensation are designed to require executives to return performance-based, variable compensation that was erroneously awarded in the year of a misstatement. This research shows the need for the use of a new clawback provision that combines aspects of the two currently in regulation. In our current federal regulation, there are two clawback provisions in play: Section 304 of Sarbanes-Oxley and section 954 of The Dodd\u2014Frank Wall Street Reform and Consumer Protection Act. This paper argues for the use of an optimal clawback provision that combines aspects of both the current SOX provision and the Dodd-Frank provision, by integrating the principles of loss aversion and narcissism. These two factors are important to consider when designing a clawback provision, as it is generally accepted that average individuals are loss averse and executives are becoming increasingly narcissistic. Therefore, when attempting to mitigate the risk of a leader keeping erroneously awarded executive compensation, the decision making factors of narcissism and loss aversion must be taken into account. Additionally, this paper predicts how compensation structures will shift post-implementation. Through a survey analyzing the level of both loss- aversion and narcissism in respondents, the research question justifies the principle that people are loss averse and that a subset of the population show narcissistic tendencies. Both loss aversion and narcissism drove the results to suggest there are benefits to both clawback provisions and that a new provision that combines elements of both is most beneficial in mitigating the risk of executives receiving erroneously awarded compensation. I concluded the most optimal clawback provision is mandatory for all public companies (Dodd-Frank), targets all executives (Dodd-Frank), and requires the recuperation of the entire bonus, not just that which was in excess of what should have been received (SOX).
ContributorsLarscheid, Elizabeth (Author) / Samuelson, Melissa (Thesis director) / Casas-Arce, Pablo (Committee member) / WPC Graduate Programs (Contributor) / School of Accountancy (Contributor) / Barrett, The Honors College (Contributor)
Created2018-12
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Description
Given its impact on the accounting profession and public corporations, Sarbanes-Oxley Act of 2002(SOX) is a widely researched regulation among accounting scholars. Research typically focuses on the impact it has had on corporations, executives and auditors, however, there is limited research that illustrates the impact SOX may have on average

Given its impact on the accounting profession and public corporations, Sarbanes-Oxley Act of 2002(SOX) is a widely researched regulation among accounting scholars. Research typically focuses on the impact it has had on corporations, executives and auditors, however, there is limited research that illustrates the impact SOX may have on average Americans. There were several US criminal code sections that resulted from the passing of SOX. Statute 1519, which is often referred to as the "anti-shredding provision", penalizes anyone who "knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to" obstruct a current or foreseeable federal investigation. This statute, although intended to punish behavior similar to that which occurred in the early 2000s by corporations and auditors, has been used to charge people beyond its original intent. Several issues with the crafting of the statute cause its broad application and some litigation even reached the Supreme Court due to its vague wording. Not only is the statute being applied beyond the intent, there are other issues that legal scholars have critiqued it for. This statute is far from being the only law facing these issues as the same issues and critiques are found in the 14th amendment. Rewriting the statute seems to be the most effective way to address the concerns of judges, lawyers and defendants regarding the statute. In addition, Congress could have passed this statute outside of SOX to avoid being seen as overreaching if obstruction of justice related to documents was actually an issue outside of corporate fraud.
ContributorsGonzalez, Joana (Author) / Samuelson, Melissa (Thesis director) / Lowe, Jordan (Committee member) / School of Accountancy (Contributor) / Barrett, The Honors College (Contributor)
Created2016-12
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Description
Auditors are required to communicate significant risks and audit strategy to the audit committee. However, the effect on perceived auditor liability of auditor disclosures to the audit committee has been ignored for the most part in the accounting literature. In an experiment, I examine how the auditor’s choice to disclose

Auditors are required to communicate significant risks and audit strategy to the audit committee. However, the effect on perceived auditor liability of auditor disclosures to the audit committee has been ignored for the most part in the accounting literature. In an experiment, I examine how the auditor’s choice to disclose a significant risk to the audit committee affects jurors’ negligence assessments of the auditor. Secondarily, I examine whether assessments of auditor negligence vary with the auditor’s use of a specialist. I find that disclosing a risk to the audit committee reduces jurors’ negligence verdicts against the auditor. However, auditor efforts to improve audit quality through use of a specialist do not differentially affect negligence assessments, individually or interactively with disclosure choices. My results further reveal that there is no reduction of negligence assessments by disclosing risks to the audit committee if jurors do not have a pre-existing favorable view of the auditing profession and do not understand the limitations of an audit. Through mediation analysis, I show that these findings are consistent with expectations derived from psychology research examining responsibility attributions in settings with multiple causative agents, where jurors’ diffuse responsibility away from the auditor and toward the audit committee. My results contribute to practice, addressing one cost/benefit consideration related to disclosures to audit committees and the use of specialists, and to accounting research examining the legal ramifications of disclosing identified audit risks.
ContributorsChambers, Valerie A. (Author) / Reckers, Philip (Thesis advisor) / Lowe, David J. (Committee member) / Maksymov, Eldar (Committee member) / Arizona State University (Publisher)
Created2017
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Description
Given that lobbying activity by audit firms constitutes a potential advocacy threat to auditor independence, this paper seeks to provide an economic rationale for audit firm lobbying behavior. Specifically, I examine whether federal lobbying activity by audit firms contributes to their ability to retain existing clients and attract new clients.

Given that lobbying activity by audit firms constitutes a potential advocacy threat to auditor independence, this paper seeks to provide an economic rationale for audit firm lobbying behavior. Specifically, I examine whether federal lobbying activity by audit firms contributes to their ability to retain existing clients and attract new clients. Consequently, I predict and find that greater lobbying activity is associated with a lower probability of auditor switching behavior as well longer auditor tenure when the client is in an industry with high interest in lobbying. I also find that, when switching audit firms, clients tend to choose audit firms with greater lobbying activity and that companies in industries with high interest in lobbying are more likely to choose an audit firm with greater lobbying activity than their previous auditor.
ContributorsKim, Margaret Hyun-Mee (Author) / Hillegeist, Stephen (Thesis advisor) / Reckers, Philip (Committee member) / Kaplan, Steven (Committee member) / Arizona State University (Publisher)
Created2017
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Description
Depletion can be a common occurrence in today’s world where a rapid pace is the norm. Depletion is the using of a person’s self-monitoring resources that can erode one’s decision making ability. Depletion affects people in their day-to-day personal and professional lives and can especially be problematic when it compromises

Depletion can be a common occurrence in today’s world where a rapid pace is the norm. Depletion is the using of a person’s self-monitoring resources that can erode one’s decision making ability. Depletion affects people in their day-to-day personal and professional lives and can especially be problematic when it compromises career prospects. Professionals, such as doctors, lawyers, and accountants, all make important decisions daily and in pursuit of quality decision-making must exert self-control and avoid impulsive reactions to environmental events. Many studies have been conducted providing evidence of the harmful effects of cognitive depletion; an extensive literature focuses on the medical profession where poor decision-making has life-and-death consequences. This thesis reflects on the effect of depletion on accounting professionals. To that extent, behavioral experiments were conducted using student participants: students that will be future accountants. This study found that accounting students’ performance on a subsequent task was influenced if they had completed a difficult first task. Accountants, along with all professionals, need to be made aware of this circumstance to ensure that those who may be more susceptible to their resources being depleted can find ways to be aware of their self-control levels.
ContributorsBlevins, Megan J (Author) / Clausen, Thomas (Thesis director) / Reckers, Philip (Committee member) / School of Accountancy (Contributor) / Dean, W.P. Carey School of Business (Contributor) / Barrett, The Honors College (Contributor)
Created2019-05
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Description
Accounting estimates are developed in a bottom-up fashion; subordinates generate estimates that are reviewed by managers. The anchoring heuristic suggests managers may be highly influenced by subordinates’ initial estimates. However, motivated reasoning theory predicts that reporting incentives will bias managers’ review in favor of estimates that are incentive consistent, and

Accounting estimates are developed in a bottom-up fashion; subordinates generate estimates that are reviewed by managers. The anchoring heuristic suggests managers may be highly influenced by subordinates’ initial estimates. However, motivated reasoning theory predicts that reporting incentives will bias managers’ review in favor of estimates that are incentive consistent, and managers will selectively attend to information that supports their preferred conclusion, including their perceptions of the subordinate. Using experimental methods I manipulate the consistency of the subordinate estimate with management reporting incentives, and the narcissistic description of the subordinate. Consistent with motivated reasoning theory, I find that managers anchor on incentive consistent subordinate estimates, regardless of subordinate narcissism, but anchor less on incentive inconsistent subordinate estimates, especially when the estimate comes from a narcissistic subordinate. I also find evidence that managers believe narcissistic subordinates act strategically in their own self-interest, and selectively attend to this belief to adjust away from incentive inconsistent subordinate estimates, but not incentive consistent subordinate estimate. My results reveal two potential weaknesses in the management review process: susceptibility to subordinate anchors, and bias created by reporting incentives.
ContributorsHayes, Matthew J (Author) / Reckers, Philip (Thesis advisor) / Lowe, Jordan (Committee member) / Maksymov, Eldar (Committee member) / Arizona State University (Publisher)
Created2016
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Description
Relative performance evaluation (RPE) in Chief Executive Officer (CEO) compensation contracts entails the use of peer performance to filter out exogenous shocks and reduce exposure to risk. Theory predicts that high-quality peers can effectively filter out noise from performance measurement, yet prior empirical studies do not examine how differences in

Relative performance evaluation (RPE) in Chief Executive Officer (CEO) compensation contracts entails the use of peer performance to filter out exogenous shocks and reduce exposure to risk. Theory predicts that high-quality peers can effectively filter out noise from performance measurement, yet prior empirical studies do not examine how differences in peer quality affect the use of RPE in practice. In this study, I propose a model to select peers with the highest capacity to filter out noise and introduce a novel measure of peer quality. Consistent with the theory, I find that firms with high quality peers rely on RPE to a greater extent than firms with few good peers available. I also examine the extent to which peers disclosed in proxy statements overlap with the best peers predicted by my model. I find that the overlap is positively associated with institutional ownership, use of top 5 compensation consultants, and compensation committee competence.
ContributorsCho, Jeh-Hyun (Author) / Matejka, Michal (Thesis advisor) / Kaplan, Steve (Committee member) / Casas-Arce, Pablo (Committee member) / Arizona State University (Publisher)
Created2020