This study bridges a
notable gap in the earnings management literature by incorporating R&D
expenses into a novel research model. It categorizes earnings management into
two types: predictive and opportunistic. This research explores the intricate
relationship among earnings management, compensation structures, and firm
performance—a triad of persistent concern to regulators, practitioners, and
academics alike. Our findings reveal that in Taiwan, an emerging market,
corporate governance mechanisms like compensation policies significantly
influence executive behavior and overall firm performance. Specifically, we
demonstrate that enhancing executive compensation can improve firm outcomes by
encouraging executives to engage in predictive earnings management.
