THE NEXUS BETWEEN EARNINGS MANAGEMENT, CEO COMPENSATION, AND FIRM VALUE: EMPIRICAL EVIDENCE FROM THE NAIROBI SECURITIES EXCHANGE

Remmy Wekesa Nyongesa, Cyrus I. Mwangi, Joshua M. Wanjare

Abstract


This study investigates the intricate relationships between earnings management, CEO compensation, and firm value within companies listed on the Nairobi Securities Exchange (NSE). Utilizing a comprehensive dataset spanning 10 years, the research delves into how earnings management practices influence CEO compensation structures and, subsequently, the overall value of the firm. The study employs robust econometric models to analyze the interactions between these variables, shedding light on whether earnings management serves as a tool for CEOs to meet performance targets and enhance their compensation or if it detracts from the firm's long-term value. Empirical findings reveal significant correlations, indicating that firms engaging in higher levels of earnings management tend to exhibit more aggressive CEO compensation packages. Moreover, the study highlights the dual-edged nature of earnings management, showing its potential to positively and negatively impact firm value depending on the context and magnitude of such practices. The insights gained from this research contribute to the broader discourse on corporate governance, providing valuable implications for regulators, investors, and policymakers aiming to enhance the transparency and accountability of executive compensation and financial reporting practices in emerging markets.

 

JEL: G34, M41, J33, G32, C33, G15

 

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Keywords


chief executive officer compensation, earnings management, corporate governance, firm value

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DOI: http://dx.doi.org/10.46827/ejefr.v8i4.1791

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