Seminar (Dept. of Finance)

Title: Relative Performance Evaluation and Contagion in Financial Reporting

Speaker: Deniz Anginer, Associate Professor of Finance at Beedie Business School, Simon Fraser University

Time: 10:00-11:30, October 18, 2024(Friday)

Venue: Room 1008, Mingde Business Building

Language: English

ABSTRACT:

We examine the effect of relative performance contracts on a company’s financial reporting quality. Using data on actual peer firms, we find that the adoption of relative performance evaluation provides financial incentives for earnings management. Higher earnings management in the set of peer firms leads to higher earnings management in the target firm. If the peer firm also uses the target firm as its peer in their incentive plans, this mutual benchmarking strengthens the earnings management contagion effect. The contagion effect also exists in real earnings management, and in the likelihood of restatement.