Authors : Hyeonjeong Kim and Giseok Nam
Abstract: This study empirically tested the relationship between managerial and employee wage gap and earnings management for Korean firms listed on KOSPI and KOSDAQ market from 2009-2014. As a result both the accrued earnings management and the actual earnings management showed a significant negative correlation with the manager-employee pay ratio. In addition as a result of comparing the corporate governance with the existing results, it is found that the wage gap when the corporate governance is superior is less influential on earnings management than it is not. Furthermore, the effect of the pay ratio on the actual earnings management was analyzed by dividing the sample used in the study into the group with the relatively higher wage gap and the group with the lower wage gap and the results showed that the effect of the pay ratio on the earnings management is larger for the group with relatively low wage gap compared with relatively large wage gap. This empirical result suggests that the wage gap has information usefulness as accounting information and it is expected that the disclosure of pay ratio between manager and employee will be used as a measure of earnings management.
Hyeonjeong Kim and Giseok Nam, 2018. CEO-Employee Pay Ratio and Earnings Management. Journal of Engineering and Applied Sciences, 13: 5717-5730.