Paying for integrity: How cash-heavy audit committee compensation enhances earnings quality
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Received March 6, 2025;Accepted May 23, 2025;Published June 4, 2025
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Author(s)Link to ORCID Index: https://orcid.org/0009-0003-0655-7686
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Link to ORCID Index: https://orcid.org/0009-0006-0462-6950,
Link to ORCID Index: https://orcid.org/0009-0005-7930-5580,
Link to ORCID Index: https://orcid.org/0009-0001-3598-4789,
Link to ORCID Index: https://orcid.org/0009-0009-7020-2189,
Link to ORCID Index: https://orcid.org/0009-0006-6830-6040 -
DOIhttp://dx.doi.org/10.21511/imfi.22(2).2025.28
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Article InfoVolume 22 2025, Issue #2, pp. 354-364
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This study examines whether paying audit committee members a higher proportion of cash, rather than equity, improves the quality of financial oversight. Using 7,159 firm-year observations from publicly listed non-financial U.S. companies between 2005 and 2023, this paper focuses on firms with standardized financial disclosures and comparable audit committee structures. The sample begins in 2005 to reflect the regulatory environment following the implementation of Section 404 of the Sarbanes-Oxley Act, which requires companies to assess and disclose the effectiveness of internal controls. The results show that a higher proportion of cash compensation is significantly associated with lower discretionary accruals, indicating stronger earnings quality. This relationship holds across alternative model specifications and accrual quality measures. The findings suggest that cash-based pay may enhance audit committee independence by reducing incentives tied to stock performance. For companies and regulators, the study underscores the importance of compensation design – favoring cash over equity may help strengthen financial reporting oversight and reduce earnings management, particularly in complex or high-risk firms.
- Keywords
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JEL Classification (Paper profile tab)M41, M21, G30, M42
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References23
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Tables3
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Figures2
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- Fіgure A1. Director compensation - Example 1
- Fіgure A2. Director compensation - Example 2
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- Table 1. Summary statistics
- Table 2. Relationship between earnings management and AC cash-based compensation ratio (N = 7,159)
- Table B1. Variables definition
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Conceptualization
Tianyingkuo Yang, Lihong Zhao, Ruixue Sun, Yuki Gong, Sing Lui So, Hideyuki Hao Sun
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Data curation
Tianyingkuo Yang
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Writing – original draft
Tianyingkuo Yang, Lihong Zhao, Ruixue Sun, Yuki Gong, Sing Lui So, Hideyuki Hao Sun
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Writing – review & editing
Tianyingkuo Yang, Lihong Zhao, Ruixue Sun, Yuki Gong, Sing Lui So, Hideyuki Hao Sun
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Investigation
Lihong Zhao, Yuki Gong
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Methodology
Lihong Zhao, Ruixue Sun, Yuki Gong, Sing Lui So, Hideyuki Hao Sun
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Software
Lihong Zhao, Ruixue Sun, Yuki Gong, Hideyuki Hao Sun
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Formal Analysis
Ruixue Sun, Sing Lui So
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Visualization
Sing Lui So
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Conceptualization
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Does board composition have an impact on CSR reporting?
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IFRS convergence: opportunities and challenges in India
Parvathy P. R. doi: http://dx.doi.org/10.21511/afc.01(2).2017.02Accounting and Financial Control Volume 1, 2017 Issue #2 pp. 13-18 Views: 4001 Downloads: 1805 TO CITEPast decade has witnessed several changes in the process of conduct of business activities across the world especially due to the wave of globalization. It has also made drastic changes in the process of financial reporting, in particular the continuing adoption of IFRS (International Financial Reporting Standards) worldwide. IFRS are high quality, understandable, enforceable and globally acceptable accounting standards issued by IASB (International Accounting Standard Board). Thus these are a set of international accounting standards stating how a particular type of transaction and other events should be reported in the financial statements. Thus IFRS are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. IFRS is becoming the global language of business with over 40% of the world adopting this as their standard for reporting. India also decided to converge to IFRS from 1st April 2016 in a phased manner, which in turn improves the financial statement comparability and transparency that helps to attract greater cross border investments. This paper focuses on the convergence of IFRS with Indian Accounting Standards, its utility, issues and challenges faced by the stakeholders. It also throws light to the ways through which problems can be addressed.
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Corporate governance and financial performance: an empirical analysis of selected multinational firms in Nigeria
Gideon Tayo Akinleye , Odunayo Olarewaju, Bamikole Samson Fajuyagbe doi: http://dx.doi.org/10.21511/ppm.17(1).2019.02
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