Do the highest-paid CEOs affect the accounting conservatism? An empirical investigation in France

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Abstract

Based on 1575 firms-year observations from French companies listed on the Paris stock exchange from 2009 to 2017, this research study investigates the linkage between accounting conservatism and highest-paid chief executive officers (CEOs) and if this linkage increases as executive remuneration-performance sensitivity increases. The study’s findings show that there is a negative association between accounting conservatism and highest-paid CEOs. These findings suggest that the highest-paid CEOs can manage and restrict managerial accounting choices for their own gains, and, in turn, this has a negative effect on accounting conservatism. Firstly, in order to achieve generally discretionary goals, they distort the accounting figures by overvaluing their companies’ gains. Secondly, the negative linkage between accounting conservatism and highest-paid CEOs increases when they receive greater remuneration incentives for accounting performance. These findings indicate that powerful CEOs are incentivized to adjust earnings since the greater incentives help them to inflate their companies’ accounting results; to distort accounting performance, and provide investors with misleading information. In turn, such actions generate the ex-post settling up problems and end, unfortunately, in fraudulent behaviors. This study contributes to the literature that studies the relationship between accounting conservatism and the highest-paid senior executives in order to identify accounting conservatism (Iwasaki, Otomasa, Shiiba, & Shuto, 2018; Li, Henry, & Wu, 2019; Haider, Singh, & Sultana, 2021).

Keywords: Accounting Conservatism, Highest-Paid Chief Executive Officers, Ex-Post Settling-Up Problems, Executive Remuneration, Performance Sensitivity, Rent-Seeking

Authors’ individual contribution: Conceptualization — A.A. and A.A.; Methodology — A.A., A.A., and B.B.; Writing — Original Draft — A.A., A.A., and B.B.; Investigation — A.A., A.A., and B.B.; Resources — A.A., A.A., and B.B.; Formal Analysis — A.A., A.A., and B.B.; Writing —Review & Editing — A.A., A.A., and B.B.; Visualization — A.A., A.A., and B.B.; Project Administration — A.A., A.A., and B.B.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: This research was supported and funded by the research sector, Arab Open University, Kuwait Branch, under decision No. “21054”.

JEL Classification: C23, G20, G34, L25

Received: 17.11.2020
Accepted: 14.04.2021
Published online: 16.04.2021

How to cite this paper: Aguir, A., Alqatan, A., & Bzeouich, B. (2021). Do the highest-paid CEOs affect the accounting conservatism? An empirical investigation in France. Journal of Governance & Regulation, 10(2), 96–107. https://doi.org/10.22495/jgrv10i2art9