4 WHY ARE
ACCOUNTING RETURNS RELATED TO EXECUTIVE COMPENSATION?
In accounting terms, what is discussed in the literature is a possible trade-off between accounting liquidity and profitability caused by the assumption that companies that carry more liquid assets would be less apt to generate greater
accounting returns for shareholders (commonly defined as net income per unit of net equity, or return on equity, or simply ROE).
At managerial level, companies use summary measures of aggregate performance, using monetary terms such as profits,
accounting returns and market returns, but none of these is perfect on its own.
Penman (2001) examined the relationship between interest rates and
accounting returns and growth.
(2005) also propose that
accounting returns and market measures represent two distinct dimensions of firm performance.
In their paper the author found marginal evidence that
accounting returns cause stock returns.
But short-term profit measures and
accounting returns often do not do that.
The evidence of volatile performance was less complete, but there was a strong indication that CEO narcissism was associated with large annual fluctuations in
accounting returns (ROA)."
It is important to note that these results are based on
accounting returns where firms can take advantage of the tax incentives, such as dividend distributions policy, principal and interest deductions on ESOP loans, provided under ERISA rules.
Letsinger noted that all syndicates currently have to file annual
accounting returns. She described this as the first step toward converting to U.K.
The purpose of this paper is to investigate the impact of bank asset composition on
accounting returns. Since the risk-based capital standards were implemented in January of 1993, most research on bank asset composition has focused on the impact of the risk-based capital requirements on bank asset composition.
The pair-wise correlations in Table III suggest that firms with committee insiders have lower stock and
accounting returns, more concentrated ownership structures, and pay their CEOs a lower salary.
