Remuneration of Executives and Brazilian Companies' Conditional Conservatism

The purpose of this study is to analyze the relationship between executive compensation and the degree of conditional conservatism of Brazilian companies. The period of analysis spanned from 2011 to 2015. The final sample of the study consisted of 258 companies for the year 2011, 253 companies for the years 2012 and 2013, 255 companies for the year 2014 and 258 companies comprised the final sample the year 2015. For data analysis, we used the accounting conservative model from Ball and Shivakumar (2005) and hence proxies for fixed and variable remuneration of executives based on companies' profit and shares were applied. The results of the study made it possible to confirm the research hypothesis given that conditional conservatism, when measured by the timely recognition of losses as a proxy for good and bad news, was affected by the fixed and variable remuneration of executives. It is possible to conclude that profit-based compensation plans and corporate actions allow executives to use accounting procedures that increase their remuneration in the short and long term, given the evidence of a negative relationship between the variable remuneration of executives and the level of conditional conservatism of Brazilian companies. Regarding the practical contributions of this study, it should be noted that the analysis of conditional accounting conservatism must be present when using the executive remuneration variable thus mitigating more aggressive accounting practices that could impair the quality of the accounting information made available to stakeholders.