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Accounting conservatism and managerial excess perks

This paper sheds light on the relationship between accounting conservatism and managerial excess perks. In general, there are two views about managerial perks, agency cost view and management incentive view. Under the assumption that considers managerial perks as agency costs, the abnormal managerial perks erode the value of firms. | http afr. sciedupress.com Accounting and Finance Research Vol. 8 No. 2 2019 Accounting Conservatism and Managerial Excess Perks Han Li1 1 SILC Business School Shanghai University Shanghai China Correspondence Han Li SILC Business School Shanghai University 20 Chengzhong Road JiaDing District Shanghai 201800 China. Tel 86-21-6998-0028 ext.5310L Received February 11 2019 Accepted March 4 2019 Online Published March 11 2019 doi 10.5430 afr.v8n2p32 URL https doi.org 10.5430 afr.v8n2p32 Abstract This paper sheds light on the relationship between accounting conservatism and managerial excess perks. In general there are two views about managerial perks agency cost view and management incentive view. Under the assumption that considers managerial perks as agency costs the abnormal managerial perks erode the value of firms. Accounting conservatism can significantly restrict the managerial excess perks. Due to the strict compensation regulation in China s SOEs the negative relationship between accounting conservatism and excess perks in China s SOEs is stronger than in non-SOEs. Further in the robustness tests this paper finds that negative relationship is stronger in the firms of lower level accounting conservatism or higher level financial leverage. Keywords conservatism perquisites earnings management managerial behaviour 1. Introduction Managerial perks are defined as forms of nonmonetary compensation to selected employees Rajan and Wulf 2006 . Different with explicit compensation such as salary bonus etc. managerial perks as implicit compensation are not easily observed. Therefore managerial perks sometimes are used as the manipulated accounting tools by some managers in order to increase or decrease the firms earnings. In the prior researches there are two mainstream theories for explaining the managerial perks. One is agency cost view the other is incentive scheme view. For the agency cost view managerial excess perks are the proofs of agency problems that the .