The impact of executive pay on the disclosure of alternative earnings per share figures

This paper investigates the motives for disclosing an alternative earnings per share (EPS) figure. In particular, we extend prior findings for the UK (Choi, Lin, Walker & Young, 2007) by highlighting the role of managerial contracting in the alternative EPS disclosure choice. We examine a specific contractual setting where management is especially sensitive to reported earnings numbers, i.e., when EPS performance targets exist in the managerial remuneration package. Our analysis suggests that the choice to disclose an alternative EPS figure is positively related to firms where the vesting of executive share options (ESOs) is contingent on the achievement of growth in EPS. Our results remain significant after testing for selection bias, direction of causality and after matching firms on variables prior literature identifies as influential in the choice of an EPS target as a performance criterion in executive remuneration.