Executive Compensation and Financial Accounting

Foundations and Trends in Accounting Vol 4(2)

David Aboody & Ron Kasznik

Abstract: In this paper we provide research perspectives on the relation between executive compensation and firms’ financial reporting and disclosure policies. In particular, we examine the two primary contexts in which this relation has been examined in the extant literature. The first issue we examine is the extent to which the structure of executive compensation plans, particularly the use of earnings- and stock-based compensation, induces certain financial reporting and disclosure choices. The second issue we examine is the extent to which accounting regulation related to financial reporting and income taxation creates incentives for firms to design certain compensation plans for their executives. We highlight the key inferences from these areas of research and offer some suggestions for the development of a more integrated research agenda.

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