Does chief executive compensation predict financial performance or inaccurate financial reporting in listed companies: A systematic review

IF 4 Q1 SOCIAL SCIENCES, INTERDISCIPLINARY

Campbell Systematic Reviews Pub Date : 2023-12-11 DOI:10.1002/cl2.1370

Denise Rousseau, Byeong Jo Kim, Ryan Splenda, Sarah Young, Jangbum Lee, Donna Beck

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(2019) protocol, this systematic review assesses the predictive effects of CEO incentives on certain business outcomes.</p>\n </section>\n \n <section>\n \n <h3> Objectives</h3>\n \n <p>This review addresses whether CEO financial incentives predict: (1) firm financial performance and (2) financial restatement due to misreporting.</p>\n </section>\n \n <section>\n \n <h3> Search methods</h3>\n \n <p>We searched nine research databases for published peer-reviewed literature (to July 23–26, 2021 and an attenuated search from those dates to July 27–31, 2023) and thirteen professional association websites for non-published gray literature (to August 2021). We also hand-searched selected relevant journals.</p>\n </section>\n \n <section>\n \n <h3> Selection criteria</h3>\n \n <p>We reviewed peer-reviewed and unpublished studies available in English since 1980. 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Bonuses, the most commonly studied incentive, had a small positive effect on next year's accounting performance metric Return on Assets (ROA, 0.046 [<i>k</i> = 7, 95% confidence interval (CI) = 0.014, 0.078]). The bonus effect in the market-related metric of Stock Returns (−0.026 [<i>k</i> = 5, 95% CI = −0.119, 0.067]) fell within a CI including 0, as did its effect on another market-related metric, Market-to-Book value (Tobin's Q, 0.028 [<i>k</i> = 3, 95% CI = −0.024, 0.08]). We conclude that Bonuses show no predictive effect on the following year's market-related metrics but do affect ROA. Stock Options had no effect on next year's ROA (0.027 [<i>k</i> = 5, 0.95% CI = 0.000, 0.052]), nor on Market-to-Book Value (Tobin's Q, 0.097 [<i>k</i> = 5, 95% CI = −0.027, 0.220]) or Stock Return (0.042 [<i>k</i> = 6, −0.033, 0.117]), indicating no predictive effect for Stock Options on either accounting or market-related performance. 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Abstract

Background

Financial incentives for chief executive officers (CEOs) are thought to motivate them to lead their company toward achieving important business objectives. Based on the Rousseau et al. (2019) protocol, this systematic review assesses the predictive effects of CEO incentives on certain business outcomes.

Objectives

This review addresses whether CEO financial incentives predict: (1) firm financial performance and (2) financial restatement due to misreporting.

Search methods

We searched nine research databases for published peer-reviewed literature (to July 23–26, 2021 and an attenuated search from those dates to July 27–31, 2023) and thirteen professional association websites for non-published gray literature (to August 2021). We also hand-searched selected relevant journals.

Selection criteria

We reviewed peer-reviewed and unpublished studies available in English since 1980. Eligible studies regarding our first question assessed CEO financial incentives (1) 1 year or more before the measurement of outcomes, (2) controlled for pre-incentive firm performance or market conditions, and (3) analyzed CEO financial incentives as predictors of firm outcomes. Eligible studies regarding our second question assessed whether financial restatement had occurred and analyzed effects of CEO incentives on this outcome.

Data collection and analysis

We extracted standardized regression coefficients for each effect or converted unstandardized regressions to standardized. Analyses were conducted using STATA. All studies were assessed to have moderate risk of bias.

Main results

For our first question, 20 studies (15,398 firms) met our criteria for meta-analysis of effects. Bonuses, the most commonly studied incentive, had a small positive effect on next year's accounting performance metric Return on Assets (ROA, 0.046 [k = 7, 95% confidence interval (CI) = 0.014, 0.078]). The bonus effect in the market-related metric of Stock Returns (−0.026 [k = 5, 95% CI = −0.119, 0.067]) fell within a CI including 0, as did its effect on another market-related metric, Market-to-Book value (Tobin's Q, 0.028 [k = 3, 95% CI = −0.024, 0.08]). We conclude that Bonuses show no predictive effect on the following year's market-related metrics but do affect ROA. Stock Options had no effect on next year's ROA (0.027 [k = 5, 0.95% CI = 0.000, 0.052]), nor on Market-to-Book Value (Tobin's Q, 0.097 [k = 5, 95% CI = −0.027, 0.220]) or Stock Return (0.042 [k = 6, −0.033, 0.117]), indicating no predictive effect for Stock Options on either accounting or market-related performance. We sought but found too few studies to report on effects of incentives on other financial outcomes or for lags greater than 1 year. For our second question, three studies (n = 2044 firms) met our criteria. The overall effect size for CEO Incentives on Restatement (−0.09 [k = 3, 95% CI = −0.363, 0.184) fell within a CI including zero. We conclude that current evidence does not support a direct relationship between CEO financial incentives and Restatement.

Authors' conclusions

This review affirms a small effect of CEO Bonuses, but no effect of Stock Options, on the accounting performance metric ROA. In contrast, neither Bonuses nor Stock Options predict a firm's market-related metrics. CEO incentives also are unrelated to Financial Restatement. Despite widespread use of CEO financial incentives, lack of evidence supporting their use, beyond the bonus-ROA effect we identify, suggests caution regarding current CEO financial incentive practice and greater consideration of alternative arrangements to enhance firm performance.

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首席执行官薪酬能否预测上市公司的财务业绩或不准确的财务报告：系统回顾

背景人们认为，对首席执行官（CEO）的经济激励可以激励他们带领公司实现重要的商业目标。根据 Rousseau 等人（2019 年）的协议，本系统性综述评估了首席执行官激励对某些商业结果的预测效果。研究目的本综述探讨了首席执行官的财务激励是否能预测：（1）公司财务绩效；（2）因误报而导致的财务重述。检索方法我们在九个研究数据库中检索了已发表的同行评议文献（截止到 2021 年 7 月 23-26 日，并在此基础上减少了对 2023 年 7 月 27-31 日的检索），并在十三个专业协会网站上检索了未发表的灰色文献（截止到 2021 年 8 月）。我们还手工检索了部分相关期刊。筛选标准我们审查了自 1980 年以来的同行评审和未发表的英文研究。关于第一个问题的合格研究评估了首席执行官的财务激励措施：（1）在结果测量前 1 年或更早；（2）控制了激励前的公司业绩或市场条件；（3）分析了首席执行官的财务激励措施对公司结果的预测作用。关于第二个问题的合格研究评估了是否发生了财务重述，并分析了首席执行官激励对这一结果的影响。数据收集与分析我们提取了每种效应的标准化回归系数，或将非标准化回归系数转换为标准化回归系数。分析使用 STATA 进行。所有研究均被评估为存在中度偏倚风险。主要结果对于第一个问题，有 20 项研究（15,398 家公司）符合我们的效果荟萃分析标准。奖金是最常被研究的激励措施，它对下一年的会计绩效指标资产回报率（ROA，0.046 [k = 7，95% 置信区间 (CI) = 0.014, 0.078]）有微小的积极影响。奖金对与市场相关的指标股票收益率（-0.026 [k = 5, 95% CI = -0.119, 0.067]）的影响在包括 0 的置信区间内，对另一个与市场相关的指标账面市值（Tobin's Q, 0.028 [k = 3, 95% CI = -0.024, 0.08]）的影响也是如此。我们的结论是，奖金对下一年的市场相关指标没有预测作用，但对投资回报率有影响。股票期权对下一年的投资回报率（0.027 [k = 5, 0.95% CI = 0.000, 0.052]）没有影响，对账面市值（托宾 Q 值，0.097 [k = 5, 95% CI = -0.027, 0.220]）或股票回报率（0.042 [k = 6, -0.033, 0.117]）也没有影响，这表明股票期权对会计或市场相关业绩都没有预测作用。我们寻找了关于激励对其他财务结果的影响或滞后期超过 1 年的研究，但发现报告太少。对于第二个问题，有三项研究（n = 2044 家公司）符合我们的标准。首席执行官激励机制对重述的总体效应大小（-0.09 [k = 3，95% CI = -0.363，0.184）在包括零在内的 CI 范围内。我们的结论是，目前的证据并不支持 CEO 财务激励与重述之间存在直接关系。作者的结论这篇综述证实了首席执行官奖金对会计业绩指标 ROA 的影响较小，而股票期权则没有影响。相反，奖金和股票期权都不能预测公司的市场相关指标。首席执行官激励也与财务重述无关。尽管首席执行官的财务激励措施被广泛使用，但除了我们发现的奖金-投资回报率效应之外，缺乏支持其使用的证据，这表明对目前的首席执行官财务激励措施应持谨慎态度，并应更多地考虑通过其他安排来提高公司业绩。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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