Can Managerial Knowledge of Executive Compensation Encourage or Deter Real EarningsManagement? An Analysis of Ru26D Reporting Methods

摘要

This study examines the effects of research and development (Ru26D) reporting method and managerial knowledge of supervisor compensation on Ru26D project continuation decisions. The current study employs an experiment with a 2x3 between-participants design, manipulating both Ru26D reporting method (expense vs. capitalize) and knowledge of supervisor compensation (control group with no knowledge vs. knowledge of non-restricted stock compensation vs. knowledge of restricted stock compensation). Using salient short-term incentives to motivate real earnings management, this study demonstrates that capitalization may result in managers foregoing economically efficient Ru26D investment opportunities. The results indicate that managerial knowledge of supervisor compensation structure has little influence on managers’ Ru26D project continuation choices. However, when managers capitalizing Ru26D expenditures had knowledge that their supervisors received non-restricted (short-term) stock compensation their perceived personal responsibility for the decision significantly decreased. Participants who capitalized Ru26D expenditures and had knowledge that their supervisor received restricted (long-term) stock compensation rated the importance of making a decision to please their supervisor significantly higher than all other participants. Additionally, participants with knowledge that their supervisors restricted stock compensation were significantly more concerned about the likelihood of negative personal repercussions regardless of Ru26D reporting method. These findings contribute to the management accounting literature by providing new insights on the influence of knowledge of supervisor compensation on managerial decision making as well as additional insights into the factors that contribute to and limit real earnings management. This study also extends the literature on Ru26D by providing evidence of the potential for real earnings management when Ru26D expenditures are capitalized in the absence of personal responsibility.