Equity-based executive compensation, managerial legal liability coverage and earnings management

Equity-based compensation, Directors’ and officers’ liability insurance coverage, Earnings management This study investigates how managers’ compensation incentives, as measured by equity-based executive compensation and managerial legal liability coverage affect earnings management. The availability of compensation may encourage managers to adopt more aggressive accounting practices; however, the higher the legal liability managers face, the more it will reduce their willingness to engage in such risk-taking behavior.