Executive compensation,earnings management and shareholder litigation |
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Authors: | Robert A Jones Yan Wendy Wu |
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Institution: | (1) Department of Economics, Simon Fraser University, Burnaby, BC, V5A 1S6, Canada;(2) School of Business & Economics, Wilfrid Laurier University, Waterloo, ON, N2L 3C5, Canada |
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Abstract: | This paper examines the effects of executive compensation and potential for earnings management on the incidence of shareholder
class action lawsuits and their outcomes. Although damage measurement factors, managerial option intensity, and earnings management
all significantly affect the probability of lawsuits, they differ in their influence on the likelihood of positive settlement
and on settlement amount: Damage factors do not affect the likelihood of settlement versus dismissal. High option intensity
raises the probability of positive settlement, but does not affect its amount. High earnings management, on the other hand,
does not affect the likelihood of settlement, but does increase settlement amount. These findings suggest that factors typically
used to explain shareholder lawsuits should be interpreted with care. |
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