Payoffs to Aggressiveness

For a broad sample of firms, we use structural equations modeling to construct latent variables for real-action aggressiveness and reporting policy aggressiveness. We estimate the association between the latent variables and the associations of each latent variable with shareholder payoffs (returns)...

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Bibliographic Details
Published in:The Accounting review 2023-11, Vol.98 (7), p.153-183
Main Authors: Ecker, Frank, Francis, Jennifer, Olsson, Per, Schipper, Katherine
Format: Article
Language:English
Subjects:
Abnormal returns
Aggressiveness
Chief executive officers
Companies
Compensation
Executive compensation
Financial reporting
Financial restatements
Payoffs
Shareholders wealth
Stockholders
Structural equation modeling
Volatility
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Summary:For a broad sample of firms, we use structural equations modeling to construct latent variables for real-action aggressiveness and reporting policy aggressiveness. We estimate the association between the latent variables and the associations of each latent variable with shareholder payoffs (returns) and CEO payoffs (annual compensation to the CEO position). Results show the two types of aggressiveness are positively correlated but have different associations with the payoffs we consider. Greater policy-choice aggressiveness is associated with higher returns and compensation; the opposite is true for greater real-action aggressiveness. We find a positive association between policy-choice aggressiveness and restatement likelihood. Compared with nonrestatement firms, abnormal returns of restatement firms with aggressive policy choices are larger in the pre-restatement period and lower in the post-restatement period. Negative returns at the restatement announcement do not, on average, eliminate long-run (multi-year) positive returns of the pre-restatement period or of the period whose results are restated. JEL Classifications: M40; M41.
ISSN:0001-4826
1558-7967
DOI:10.2308/TAR-2018-0385