JOURNAL ARTICLE

Alignment between Compensation-Contracting and Value-Relevance Roles of Revenues.

  • Published In: Journal of Financial Reporting, 2023, v. 8, n. 1. P. 63 1 of 3

  • Database: Business Source Ultimate 2 of 3

  • Authored By: Liu, Hanni; Srivastava, Anup; Yin, Jennifer 3 of 3

Abstract

Revenue is the closest proxy in financial statements for market size and dominance, factors that determine the survival and future profits of modern corporations. Hence, revenue may contain value-relevant information, incremental to information contained in earnings. We find that revenue is used as a performance metric in executive compensation contracts when it provides information on equity valuation beyond the information provided by earnings. We call this occurrence an alignment between revenues' contracting and the valuation roles. The alignment is higher for firms in newer industries, with investors who focus on revenue targets, with managers who provide revenue guidance, and with analysts who issue revenue forecasts. This alignment seems efficient because revenue is more informative of future profits when it carries higher weight in executive compensation contracts. We conclude that modern corporations increasingly incentivize managers to create new markets and defend existing market shares, in addition to maximizing current profits. JEL Classifications: J3; L2; M41. [ABSTRACT FROM AUTHOR]

Additional Information

  • Source:Journal of Financial Reporting. 2023/03, Vol. 8, Issue 1, p63
  • Document Type:Article
  • Subject Area:Mathematics
  • Publication Date:2023
  • ISSN:2380-2154
  • DOI:10.2308/JFR-2021-024
  • Accession Number:163912568
  • Copyright Statement:Copyright of Journal of Financial Reporting is the property of American Accounting Association and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

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