Earnings Smoothing, Executive Compensation, and Corporate Governance: Evidence from the Property Liability Insurance Industry

Authors

David L. Eckles, University of GeorgiaFollow
Martin Halek, University of Wisconsin-MadisonFollow
Enya He, University of North Texas
David W. Sommer, St. Mary's University
Rongrong Zhang, Georgia Southern UniversityFollow

Document Type

Article

Publication Date

9-2011

Publication Title

Journal of Risk and Insurance

DOI

10.1111/j.1539-6975.2011.01417.x

Abstract

Unlike studies that estimate managerial bias, we utilize a direct measure of managerial bias in the U.S. insurance industry to investigate the effects of executive compensation and corporate governance on firms’ earnings management behaviors. We find managers receiving larger bonuses and stock awards tend to make reserving decisions that serve to decrease firm earnings. Moreover, we examine the monitoring effect of corporate board structures in mitigating managers’ reserve manipulation practices. We find managers are more likely to manipulate reserves in the presence of particular board structures. Similar results are not found when we employ traditional estimated measures of managerial bias.

Recommended Citation

Eckles, David L., Martin Halek, Enya He, David W. Sommer, Rongrong Zhang. 2011. "Earnings Smoothing, Executive Compensation, and Corporate Governance: Evidence from the Property Liability Insurance Industry." Journal of Risk and Insurance, 78 (3): 761-790. doi: 10.1111/j.1539-6975.2011.01417.x
https://digitalcommons.georgiasouthern.edu/econ-facpubs/41