This paper investigates whether and how Japanese firms use management earnings forecasts as a performance target for determining executive cash compensation. Consistent with the implications of the agency theory, we find that the sensitivity of executive cash compensation varies with the extent...

To test the implication of Watts' (2003) argument that accounting conservatism increases the efficiency of executive compensation contracts, we investigate the relationship between accounting conservatism and earnings-based executive compensation contracts in Japanese firms. We focus on Japanese...