The Relationship between executive compensation and earnings management among non-financial companies listed on the securities exchange in East Africa

Date
2018
Authors
Ger, Carol Owenga
Journal Title
Journal ISSN
Volume Title
Publisher
Strathmore University
Abstract
This research study aims at determining the extent of earnings management among non-financial companies listed on the securities exchange in East Africa and consequently, its relationship to executive compensation. The study was conducted among 41 non-financial companies listed during the period 2002-2016. The study used both primary and secondary sources of data whereby secondary data gathered from annual reports were used to provide empirical evidence which aimed at determining the extent of earnings management and its relationship to executive compensation. Primary data obtained through the use of questionnaires given to respondents were used to assess the perception of industry players on the extent of earnings management and its relationship to executive compensation. Pooled OLS regression was used to analyze the secondary data whereas the primary data were analyzed using descriptive statistics and triangulated to secondary data findings. This study finds that a positive significant relationship exists between executive compensation and accrual-based earnings management, however a negative and significant relationship exists between executive compensation and real earnings management. Investors are encouraged to exercise caution when deciding how to remunerate executives. Researchers and scholars are encouraged to research on better models to estimate earnings management. The study incorporated both accrual-based and real strategies in studying the relationship between executive compensation and earnings management, providing evidence of the use of both strategies. A limitation of this study is that it focused on non-financial companies, therefore other researchers are encouraged to look into earnings management in financial companies.
Description
Submitted in Partial Fulfillment of the Requirements for Degree of Master of Commerce of Strathmore University
Keywords
Earnings Management, Non-Financial Companies, Pooled OLS, Accrual-Dased Earnings Management
Citation