Contemporary Accounting Research Vol. 32 No. 3 2015
Ex Ante Severance Agreements and Earnings Management
Abstract
This research studies whether severance agreements may reduce fraudulent earnings management, and whether severance pay mitigates executives’ career concerns. In a sample of large U.S. firms, those with higher severance pay are less likely to be subject to accounting and auditing enforcement releases ( AAER s) by the U.S. Securities and Exchange Commission ( SEC ). Among S&P 500 firms in the post‐ SOX period with premanaged earnings below analyst forecasts, firms with higher severance pay are less likely to meet/beat the analyst forecast using abnormal accruals. Overall, these results suggest that fear of losing a lucrative severance package, and/or the insurance offered by such a package curbs earnings management.
- DOI
- 10.1111/1911-3846.12103
- Volume
- 32
- Issue
- 3
- Pages
- 897-940
- Language
- en
- Sources
- openalex crossref