{"title":"The Spillover of U.S. Regulatory Oversight to Foreign Markets: Evidence from the Effect of PCAOB International Inspections on Executive Compensations","authors":"Chang He, Lixin (Nancy) Su, Zheng Wang, X. Zhu","doi":"10.1080/09638180.2023.2252022","DOIUrl":null,"url":null,"abstract":"We examine the spillover effect of the Public Company Accounting Oversight Board (PCAOB) international inspection program on improving the contracting role of accounting numbers in executive compensations in an international setting. For a sample of non-U.S.-listed foreign public firms with PCAOB-inspected foreign auditors, we find a significant increase in the sensitivity of their executive cash compensations to earnings after the release of the first inspection reports on their auditors by the PCAOB, relative to those without PCAOB-inspected foreign auditors. Such a result suggests that the compensation committees of firms with PCAOBinspected auditors infer that the quality of earnings as a performance measure for determining executive compensations improves due to the PCAOB’s inspections of their auditors. We also find that a clean inspection report issued to the firm’s auditor has an incremental effect on increasing earnings pay-for-performance sensitivity. Our findings provide novel evidence on the effectiveness of U.S. regulatory oversight in foreign markets and should interest the PCAOB and local audit regulators around the world.","PeriodicalId":11764,"journal":{"name":"European Accounting Review","volume":null,"pages":null},"PeriodicalIF":2.5000,"publicationDate":"2023-09-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"European Accounting Review","FirstCategoryId":"91","ListUrlMain":"https://doi.org/10.1080/09638180.2023.2252022","RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q2","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
We examine the spillover effect of the Public Company Accounting Oversight Board (PCAOB) international inspection program on improving the contracting role of accounting numbers in executive compensations in an international setting. For a sample of non-U.S.-listed foreign public firms with PCAOB-inspected foreign auditors, we find a significant increase in the sensitivity of their executive cash compensations to earnings after the release of the first inspection reports on their auditors by the PCAOB, relative to those without PCAOB-inspected foreign auditors. Such a result suggests that the compensation committees of firms with PCAOBinspected auditors infer that the quality of earnings as a performance measure for determining executive compensations improves due to the PCAOB’s inspections of their auditors. We also find that a clean inspection report issued to the firm’s auditor has an incremental effect on increasing earnings pay-for-performance sensitivity. Our findings provide novel evidence on the effectiveness of U.S. regulatory oversight in foreign markets and should interest the PCAOB and local audit regulators around the world.
期刊介绍:
Devoted to the advancement of accounting knowledge, it provides a forum for the publication of high quality accounting research manuscripts. The journal acknowledges its European origins and the distinctive variety of the European accounting research community. Conscious of these origins, European Accounting Review emphasises openness and flexibility, not only regarding the substantive issues of accounting research, but also with respect to paradigms, methodologies and styles of conducting that research. Though European Accounting Review is a truly international journal, it also holds a unique position as it is the only accounting journal to provide a European forum for the reporting of accounting research.