Executive Compensation and the Need for Disclosure - Meet New Professor Wenxia Ge
Wenxia Ge was hired last July as an associate professor in accounting at the Telfer School of Management. She received her PhD in accounting from McGill University. We interviewed her to learn more about her research interest in executive compensation policy.
Why did you choose to study accounting? Any personal motivation?
Accounting is one of the key functions of almost any business. Accounting numbers are not “hard” numbers. They are affected by professional judgments and estimates, so there is a risk of management bias. My working experience as an accountant and an internal auditor in the banking industry inspired my research interests in financial reporting quality, auditing, bank loan contracting and bank risk-taking.
How did your PhD studies inform your current research program?
In my PhD, I was exposed to new developments in both accounting and corporate finance research, as well as rigorous research methodology courses. I was also expected to propose research ideas for my term papers and PhD dissertation. This experience helped shape my independent research capability and enabled me to conduct interdisciplinary research.
Do you have any new research highlights to share?
The pay gap between the CEO and other senior executives can either serve as “tournament incentives” or reflect managerial power. Regulators are concerned about the enlarging pay gap.
In my study “How Does the Executive Pay Gap Influence Audit Fees? The Roles of R&D investment and Institutional Ownership,” (published in the Journal of Business Finance & Accounting), my coauthor and I found that auditors consider the business context, such as innovation initiative and external monitoring, when assessing audit risk related to the executive pay gap.
How can your research influence business in Canada?
My JBFA study suggests that the executive pay gap is a risk factor that auditors should consider when deciding the audit scope and depth. Since auditors are an important participant in financial markets, their views on the executive pay gap have major implications for designing optimal compensation policies for top executives. Thus, our findings can provide insights for boards of directors and compensation committees. For regulators, our results highlight the need to consider implementing executive compensation disclosure requirements.