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The influence of remuneration structures on financial reporting quality: evidence from Australia

Safari, Maryam, Cooper, Barry J. and Dellaportas, Steven 2016, The influence of remuneration structures on financial reporting quality: evidence from Australia, Australian accounting review, vol. 26, no. 1, pp. 66-75, doi: 10.1111/auar.12083.

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Title The influence of remuneration structures on financial reporting quality: evidence from Australia
Author(s) Safari, Maryam
Cooper, Barry J.
Dellaportas, Steven
Journal name Australian accounting review
Volume number 26
Issue number 1
Start page 66
End page 75
Total pages 10
Publisher Wiley
Place of publication London, Eng.
Publication date 2016-03
ISSN 1035-6908
1835-2561
Keyword(s) Social Sciences
Business, Finance
Business & Economics
EARNINGS MANAGEMENT
CORPORATE GOVERNANCE
AUDIT COMMITTEE
FIRM PERFORMANCE
BOARD
COMPENSATION
EXECUTIVES
PAY
Summary This cross-sectional study investigates the influence of a company's remuneration structure on managers' opportunistic behaviour. The findings support the proposed hypothesis that a higher level of compliance with Remuneration Principle 8-ASX Corporate Governance Council) is associated with a lower level of earnings management. The findings support the efficient functioning of the ASX proposed remuneration structure. This cross-sectional study investigates the influence of remuneration structures on financial reporting quality, based on a sample of companies listed on the Australian Securities Exchange (ASX). Compliance with Remuneration Principle eight issued by ASX (providing recommendations on formation, operation and disclosure of remuneration committees) is expected to improve financial reporting quality represented by a decreased level of earnings management. This study expands the corporate governance literature by examining an under-researched mechanism to address the agency problem. Earnings management, as a consequence of the agency problem, is measured using the level of absolute discretionary accruals. In this study, we use the modified Jones model to measure the level of discretionary accruals and the existence of reduced earnings management. The study is conducted using a random sample of 214 firm-year observations selected from the ASX listed companies. Our findings show a higher level of compliance with the principle on remuneration is associated with lower levels of earnings management. The findings support the efficient functioning of the ASX-proposed remuneration structure in reducing earnings manipulations.
Language eng
DOI 10.1111/auar.12083
Field of Research 150106 Sustainability Accounting and Reporting
1501 Accounting, Auditing And Accountability
Socio Economic Objective 900199 Financial Services not elsewhere classified
HERDC Research category C1 Refereed article in a scholarly journal
ERA Research output type C Journal article
Copyright notice ©2016, CPA Australia
Persistent URL http://hdl.handle.net/10536/DRO/DU:30082521

Document type: Journal Article
Collection: Deakin Graduate School of Business
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