Abstract

This study aims to empirically analyse the intricate relationship between management incentives and corporate performance in terms of the accuracy of performance forecasts, the information content of stock prices, earnings management, and the quality of information disclosure. This study analyses the data of publicly listed companies over a ten-year period to identify a U-shaped relationship between management incentives and the outcomes mentioned above. The results indicate that initial enhancements in incentives like cash, equity, and control rights can lead to improvements in corporate transparency and performance. However, excessive reliance on incentives can lead to negative consequences. The study also identifies external factors that can influence these relationships. It finds that media attention strengthens the positive impact of management incentives on the quality of information disclosure while mitigating the negative effects of excessive rewards. Further, the study confirms that financial constraints amplify the influence of incentives on accounting accruals and the informational value of stock prices. This suggests that the effectiveness of incentive structures depends on the presence of financial constraints. This also contributes to the corporate governance literature by offering recommendations on the optimal level of managerial incentives to effectively achieve corporate objectives without adverse effects. This also emphasizes the significance of external monitoring and supervision in enhancing the effectiveness of incentives, providing valuable insights to practitioners and policymakers who are interested in improving the effectiveness of corporate governance systems.