Impact of Financial Crises on CEO Compensation and Earnings Management

Contemporary issues in accounting
theory

Article: Assenso-Okofo, O., Ali, J. and Ahmed, K., 2020. The effects of global
financial crisis on the relationship between CEO compensation and
earnings management. International Journal of Accounting & Information
Management.
Chapter 1 – topic 1.10
This research is mainly done with purpose to examine the effects of global financial crises
on CEO (chief executive officers) compensations and their earning management relationship that
varies with economic cycle especially the Global Financial Crises(GFC), the present article is
chosen, where authors have taken observations over a period of six years from 2005 to 2010, first
time in the history. Specifically, the authors hereby, focuses mainly on financial crisis to analyse
whether it influences the relationship between CEO bonus and discretionary accruals. A number
of nations enacted legislations regarding with excessive payment to chief executive officers, for
raising voice of shareholders with disagreement on their remuneration plans. For this purpose, a
deep analysis is made under this research, over various firms of different countries like Malaysia,
Australia and Asian ones, to analyse the factors that impact on earning management and arise
inconsistencies in accounting standards and policies. During GFC, companies are unable for
achieving their targets therefore, to meet any predetermined target, they used to manipulate
earnings, which might have a potential effect on earnings management on compensation of CEO.
Therefore, taking this article help in exploring the facts how financial crises effect CEO
compensations and earning management, so that improvement could be made in accounting
standards to overcome from the same. The practical implications which includes findings, justify
more monitoring as well as scrutiny, for limiting existence of the opportunistic managerial
behaviour. It also further aid in appropriate designing the CEO compensation packages,
especially during GFC or abnormal economic situations.
Chapter 2 – topic: 2.20
As per this article, it has been analysed that accounting standards consist flexibilities,
therefore, can be used for managing the reported earnings within varied earnings. Evidence that
shown application of accounting standards in the same includes case study of distressed firms in
Malaysia, where in financial crisis period, they have been made negotiation with banks by
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