Publications
Compensation shifting from salary to dividends
With Jeppe Christoffersen and Thomas Plenborg
European Accounting Review (2023)
https://doi.org/10.1080/09638180.2023.2226724
ABSTRACT: This paper examines whether owner-managers of small firms use their compensation strategically to change reported earnings. We identify an institutional setting, Denmark, in which the owner-manager has the discretion to shift compensation from salary to dividends and hence increase reported earnings at almost no direct cost due to approximate tax neutrality between the two income streams. Three findings emerge. First, owner-managers are twice as likely to decrease their salary when doing so can result in meeting or beating the zero earnings benchmark. Second, those decreasing their salaries to beat the benchmark are 45% more likely to increase dividends simultaneously than those who can beat the benchmark but do not. This indicates that reporting incentives shape compensation shifting. Third, owner-managed firms enjoy about 6% (EUR 1,070) lower interest rates (interest expenses), than firms reporting losses, when they beat the benchmark by simultaneously decreasing salaries and increasing dividends. Our results highlight that owner-managers can manage reported earnings by altering their own compensation, which has economic consequences for the firm. This has implications for users of owner-managed firms’ financial reports because reported earnings would seem a poor contracting signal for these firms.
Presented at the AAA Annual Meeting 2019, EAA Annual Congress 2019, EAA Doctoral Colloquium 2019, BAFA Annual Conference 2019, Stockholm School of Economics (seminar, 2018), and Nordic Accounting Conference 2018 (winner of best PhD paper award)
Accounting for employee flows
With Jeppe Christoffersen and Thomas Plenborg
Journal of Business Finance & Accounting (2022)
https://onlinelibrary.wiley.com/doi/abs/10.1111/jbfa.12673 (open access)
This paper examines employee flows and the association with firm earnings and interest rates. We use administrative employer–employee matched panel data from Denmark spanning 17 years and hence exploit actual data on arriving (labor inflows) and departing (labor outflows) employees. Five findings emerge. First, we condition by firms’ economic conditions. Employee arrivals predict earnings increases, however only for prior-year profit firms. Employee departures predict earnings increases for prior-year loss firms, while they predict earnings decreases for prior-year profit firms, suggesting that this conditioning can help explain the mixed results in the literature. Second, the effect of employee departures on earnings changes is muted when more departures are replaced by arrivals of the same position. Third, the effects are stronger for high-paid employees than for low-paid ones. Fourth, using information on both employee arrivals and departures predicts earnings better than using either measure in isolation (which the literature typically does). Fifth, we find that lenders price employee flow information but only for departures of high-paid employees, despite the predictive ability of flow information on other employees for future earnings. Overall our results suggest that employee flows predict firm financial performance but are only partially priced by lenders.
Presented at the EAA Annual Congress 2022 (Bergen) and the JBFA Capital Markets Conference 2022 (Milano).
Criminals, bankruptcy, and cost of debt
With Kasper Regenburg
Review of Accounting Studies (2021)
https://link.springer.com/article/10.1007/s11142-021-09608-6 (open access)
ABSTRACT: We examine whether criminal records of managers and employees provide information on firms’ likelihood of bankruptcy and whether lenders adjust their required cost of debt for such factors. We use a nationwide sample of private firms and criminal registers covering all firm employees. We find that the likelihood of bankruptcy increases when the CEO has a criminal record and increases with the proportion of employees with criminal records. Lenders price loans higher when the CEO of a borrowing firm has a criminal record but not when a borrower has a high proportion of employees with criminal records. The results suggest that firm employee characteristics represent a source of risk information that is not priced by lenders.
Presented at the RAST 2020 Conference (online conference), Copenhagen Business School 2020 (webinar), and University of Southern Denmark 2020 (webinar)
Presentation available here
Cancelled presentations due to corona: Invited for presentation at the Scandinavian Accounting Research Conference 2020 (Oslo), accepted for presentation at the EAA Annual Congress 2020 by Kasper
Gazelles: Sprinters or marathon runners?
Local research written in Danish. English abstract copied below.
Regnskab og Revisionsvæsen (Accounting and Auditing) (2021)
Paper available here
ABSTRACT: Gazelle companies are referred to as Denmark's most succesful growth companies. Despite this, I find that the gazelles, in the years after winning the Gazelle Price, experience (1) growth in gross profits in line with peers and growth in net income below peers, (2) a significant decrease in profitability, from around 14 percentage points above peers before winning the price to about 2-3 percentage points above after winning the price, and (3) an increase in the bankruptcy likelihood. Collectively, the results question the Gazelles' ability to maintain the high performance level, which could be useful information for potential investors.