Vega et al. (2020) find that incentives in executive compensation result in higher earnings informativeness. The discussion focuses on two areas for improvement. First, the authors could look into additional measures of earnings quality. This further analysis could help us understand whether the enhanced earning informativeness stems from capital market effects or real effects. Second, the authors could consider replacing their main earnings response coefficient (ERC) model with one of the alternative ERC models in the literature. Three different ERC models are discussed.
This paper discusses capital market effects versus real effects and illustrates different ERC models.
The discussed paper could differentiate between capital market effects and real effects and use an alternative ERC model.
An accounting audience could be interested in the discussion on capital market effects versus real effects and the illustration on various ERC models.
