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ABSTRACTManuscript Type: EmpiricalResearch Question/Issue: We examine the effect of compensation committee quality on the association between CEO cash compensation and accounting earnings and the moderating effects of growth opportunities and earnings status.Research Findings/Insights: Using a sample of 812 US firms, we find that CEO cash compensation is more positively associated with accounting earnings when firms have high compensation committee quality. We also find that the positive effect of compensation committee quality on the association between CEO cash compensation and accounting earnings is less for high growth firms or loss‐making firms.Theoretical Implications: We contribute to the agency‐based research on CEO compensation by: 1) directly examining the impact of compensation committee quality on the sensitivity of CEO cash compensation to accounting earnings; 2) examining whether the role of compensation committee quality varies across firms; and 3) developing a broader and richer measure of compensation committee quality.Practical Implications: Our findings imply that shareholders and directors should be concerned about the composition of compensation committees as we find that compensation committee quality varies depending on compensation committee size and other characteristics of the committee members. Our findings also imply that for compensation committee members, there are greater challenges in monitoring CEO compensation contracts for firms with high growth or that incur losses. Further, our findings imply that even when all compensation committees are regulated to be fully independent, there are still quality differences among these independent compensation committees.

This study investigates whether investor protection affects the efficient communication of private information about future prospects through income smoothing. While prior research suggests that the level of earnings management differs between high and low investor protection countries, we examine whether the underlying motive for earnings management differs between high and low investor protection countries. Using firm-level data from 44 countries for 1993 to 2002 and Tucker and Zarowin's (2006) method to measure earnings informativeness, we find that earnings informativeness is more positively associated with income smoothing in countries with strong investor protection than it is in countries with weak investor protection. Our findings suggest that managers in weak investor protection countries are more likely to use income smoothing for opportunistic reasons while managers in strong investor protection countries are more likely to use income smoothing to convey their private information about future earnings. The results are robust through various additional analyses. More broadly, our results suggest that the role of accounting discretion is affected by a country's institutional infrastructure, specifically, its ability to provide protection for outside shareholders.