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Is Accounting Information Quality Priced in the Managerial Labor Market?

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Title:Is Accounting Information Quality Priced in the Managerial Labor Market?
Authors:Gao, Xinghua
Jia, Yonghong
Martin, Xiumin
Keywords:Accounting information quality
CEO compensation
Pay premium
Job-security concern
Accounting-failure risk
Date Issued:2021
Abstract:We study whether accounting information quality (AIQ) is priced in the executive labor market. Examining externally hired CEOs’ initial compensation, we find an 11% pay premium for a one-standard-deviation decline in AIQ. Our findings are robust to tests addressing omitted variables, reverse causality, selection bias, and measurement error. Additional evidence suggests the job-security concern and accounting-failure risk are underlying channels. The AIQ effect is stronger for young CEOs and CEOs with external employment restrictions, lending further support to the job-security mechanism, and weaker for poorly governed firms, suggesting a potential tradeoff between post-appointment private benefits and the initial pay premium.
Appears in Collections: 10 Financial Accounting 4: Accounting issues related to labor, politics, and environments (FAR4)

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