Sun Yat-Sen Management Review

  Journal Fullview

Sun Yat-Sen Management Review  2008/12

Vol. 16, No.4  p.851-884

Asymmetric timeliness of earnings and board of directors’ profit sharing remuneration
(633719595507882500.pdf 5,753KB)

Audrey Wen-hsin Hsu、Ann Chan/

Accounting Department, National Taiwan University , Management School, University ofLiverpool


本文主要探討公司依照公司章程盈餘分配比率支付董監酬勞是否會影響 會計盈餘的品質。會計盈餘品質主要以會計的穩健保守原則程度來衡量。會計 原則中的穩健保守主義要求會計盈餘對於市場認列好消息的即時性會比認列 壞消息的即時性慢,此種不對稱將可以防止經理人盈餘操控的動機,降低管理 者和股東間的代理成本。本文發現由於董監酬勞金額的決定是依照損益表淨損 益的一定比率, 董監事將缺乏強大誘因提升會計品質,本文在控制公司負債 比、成長性以及其他公司治理變數後,發現董監酬勞越高的公司其會計保守性越低。

(633719595507413750.pdf 9KB)




The present study investigates the effect of directors’ profit sharing remuneration on the quality of earnings - timely recognition of economic losses. Conservatism manifested by the differential speed in the recognition of economic gains and losses could counteract managers’ incentives to overstate firm performance and mitigate the agency problem between management and shareholders. As directors’ pay is directly lied to bottom-line earning, we find that firms with higher directors’ remuneration are associated with less conservative earnings after controlling for leverage, firm growth and corporate governance structure.

(633719595507413750.pdf 9KB)


conservatism, asymmetric timeliness of earnings, directors’ remuneration

Policy and management implications
(Available only in Chinese)

Accounting for the profit sharing bonus is one of the most controversial accounting issue in recent years. Unlike U.S. GAAP and International Accounting Standards, Taiwanese Company Law used to require ‘employee profit sharing bonus’ and ‘profit sharing remuneration to directors ’ be treated as earnings distributions rather than expenses. This practice substantially overstates both reported net income and return on shareholders’ equity, and may cause investors to misprice accounting earnings. From January 1, 2008, Taiwan GAAP requires firms to estimate the profit sharing bonus expense in its financial statement before the actual distribution in the subsequent year. This is to address the accounting discrepancies in the past that firms record the profit sharing scheme at the date when the distribution were made, and bonus and remuneration bypass the Income Statement. In addition to the accounting discrepancies in the profit sharing scheme, this paper would like to address evidence showing that the current remuneration scheme for directors focusing only on earnings-based pay without balancing the fixed/variable portion and long- and short-term potion of remuneration can deteriorate the efficient role of financial reporting in contracting. It has long been found that accounting conservatism is one of the best controlling mechanisms to constrain managers’ myopic behaviors to decrease shareholders’ value or creditors’ utility; however, the directors’ remuneration scheme in Taiwan might mitigate the efficient role of accounting conservatism. As the directors’ remuneration is linked to net income, this measurement would reduce directors’ and supervisors’ incentives to curb the potential myopic earnings overstatement by management and increase the misalignment of managers and investors (information asymmetry). Our results show that the profit sharing type remuneration diminishes the functioning of directors/supervisors in a good governance structure. It is recommended that the remuneration packages should have a balance between fixed and variable pay and between long and short-term incentives. Firms should also introduce types of performance-based remuneration other than earnings-based remuneration that can help align the long-term interests of management with those of shareholders.