Burns-Kedia (2004): Impact of Performance-based Compensation on Misreporting n Table 1 Panel A : Panel A : Number of restating announcements increasing over time, especially n Panel C : n Panel C : Revenue Recognition is the most frequent reason for restatement, followed by Inventory Restructuring. n Panel D: Average size of restatement is $101 million, or 26% of net income. n Panel E: Restatements most likely in firms in business services, and computer equipment industries. n Table 2 n Restating firms are more leveraged, and raise more equity capital.

Burns-Kedia (2004): Impact of Performance-based Compensation on Misreporting n Table 3 n Option Sensitivity: Dollar change in the value of stock options held by the CEO for a 1% change in the stock price n $568,000 for restating CEOs. n $264,000 for non-restating CEOs. n Significantly different. n Restricted Stock Sensitivity n Not significantly different for restating and non-restating CEOs. n Longterm incentive payout to total compensation is not significantly different for restating and non-restating CEOs. n Stock option exercises are significantly higher for restating CEOs.

Burns-Kedia (2004): Impact of Performance-based Compensation on Misreporting n Table 4: Probability of restatement n Significantly increased by CEO’s vested option ownership. n Unaffected by CEO’s unvested option ownership. n Decreased by CEO’s restricted stock ownership. n Unaffected by longterm incentive payouts. n Increased by company’s leverage.

Burns-Kedia (2004): Impact of Performance-based Compensation on Misreporting