The Effect Of Adopting Accounting Based Bonus And Performance Incentive Plans On The Earnings Response Coefficient
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| Author | : Alka Arora |
| Publisher | : |
| Total Pages | : |
| Release | : 1999 |
| Genre | : |
| ISBN | : |
This study examines the disparate market response to earnings announcements for firms adopting bonus or performance incentive plans that state plan goals in terns of an earnings-based measure of performance. Bonus plans have a one year performance horizon while performance incentive plans reward managers for improved performance over a three-to-six-year period. A reduction in the earnings response coefficient is predicted for firms that adopt bonus plans since prior research documents that managers of firms with bonus plans have incentives to manipulate earnings numbers. On the other hand, an increase in the earnings response coefficient of firms that adopt performance incentive plans is expected as prior research demonstrates that managers of firms adopting performance incentive plans are motivated to improve long-term profitability. Our results do not support the hypothesis that firms adopting bonus plans experience a decline in the earnings response coefficient. However, our results are consistent with the hypothesis that the earnings response coefficient significantly increases from the pre- to the post-adoption period for firms adopting performance incentive plans.
| Author | : Cheng F. Lee |
| Publisher | : World Scientific |
| Total Pages | : 376 |
| Release | : 2006 |
| Genre | : Business & Economics |
| ISBN | : 9812772820 |
Annotation. Advances in Quantitative Analysis of Finance and Accounting is an annual publication to disseminate developments in the quantitative analysis of finance and accounting. The publication is a forum for statistical and quantitative analyses of issues in finance and accounting as well as applications of quantitative methods to problems in financial management, financial accounting, and business management. The objective is to promote interaction between academic research in finance and accounting and applied research in the financial community and the accounting profession. The papers in this volume cover a wide range of topics including earnings management, management compensation, option theory and application, debt management and interest rate theory, and portfolio diversification.
| Author | : Shilpa Manaktala |
| Publisher | : |
| Total Pages | : 31 |
| Release | : 2017 |
| Genre | : |
| ISBN | : |
Between July and December, 2002, 150 firms announced plans to voluntarily adopt the fair value method of accounting for stock-based compensation. We investigate whether such announcements increased the quality of these firms' earnings as perceived by market participants. Using two measures of earnings quality, the price/earnings relation and the earnings response coefficient, we find evidence consistent with an increase in earnings quality for these firms relative to a control set of firms that in 2002 did not announce plans to adopt the SFAS 123 stock-based compensation recognition provisions.
| Author | : |
| Publisher | : |
| Total Pages | : 608 |
| Release | : 2001 |
| Genre | : Business |
| ISBN | : |
| Author | : Paul M. Healy |
| Publisher | : Createspace Independent Publishing Platform |
| Total Pages | : 86 |
| Release | : 2017-08-08 |
| Genre | : |
| ISBN | : 9781974353040 |
Earnings-based bonus schemes are a popular means of rewarding corporate executives. Fox (1980) reports that In 1980 ninety percent of the one thousand largest U.S. manufacturing corporations used a bonus plan based on accounting earnings to remunerate managers. This paper tests the association between managers' accrual and accounting procedure decisions and their Income-reporting Incentives under these plans. Earlier studies testing this relation postulate that executives rewarded by bonus schemes select Income-Increasing accounting procedures to maximize their bonus compensation. Their empirical results are conflicting. These tests, however, have several problems. First, they Ignore the earnings' definitions of the plans; earnings are often defined so that certain accounting decisions do not affect bonuses.
| Author | : Daniel Glenn Hansen |
| Publisher | : |
| Total Pages | : 222 |
| Release | : 1997 |
| Genre | : Employees |
| ISBN | : |
| Author | : Merle Ederhof |
| Publisher | : Now Publishers Inc |
| Total Pages | : 86 |
| Release | : 2011 |
| Genre | : Business & Economics |
| ISBN | : 1601984545 |
Discretion in Managerial Bonus Pools synthesizes and integrates a growing literature that has emerged over the past 10-15 years on the use of both objective and subjective performance indicators in managerial incentive plans. The authors examine the structure of efficient bonus pools (fixed payment schemes) in the presence of subjective performance indicators. The analysis covers a range of scenarios including single- and multi-agent settings, the interplay of objective and subjective indicators and short-term as opposed to long-term contracting relations. To synthesize the existing research, the authors frame their exposition around five recurring themes which collectively speak to the structure and the efficiency of incentive schemes based on subjective information i. Value of Subjective Performance Indicators. ii. Incremental Agency Cost. iii.Compression of Optimal Incentive Contracts. iv. Optimality of Proper Bonus Pools. v. Value of Multiperiod Contracting
| Author | : Kyungho Kim |
| Publisher | : |
| Total Pages | : 84 |
| Release | : 1994 |
| Genre | : |
| ISBN | : |
| Author | : Bo Sun |
| Publisher | : DIANE Publishing |
| Total Pages | : 33 |
| Release | : 2010-08 |
| Genre | : Business & Economics |
| ISBN | : 1437930980 |
Analyzes executive compensation in a setting where managers may take a costly action to manipulate corporate performance, and whether managers do so is stochastic. Examines how the opportunity to manipulate affects the optimal pay contract, and establishes necessary and sufficient conditions under which earnings management occurs. The author¿s model provides a set of implications on the role earnings management plays in driving the time-series and cross-sectional variation of executive compensation. In addition, the model's predictions regarding the changes of earnings management and executive pay in response to corporate governance legislation are consistent with empirical observations. Charts and tables.
| Author | : Flora Guidry |
| Publisher | : |
| Total Pages | : |
| Release | : 1997 |
| Genre | : |
| ISBN | : |
This study tests the Fixed-Target Hypothesis (Healy, 1985), wherein it is hypothesized that managers make discretionary accrual decisions to maximize their short-term bonuses. We conduct our analysis using business unit-level rather than firm-level data. In our setting, business unit manager incentive compensation is based solely on business unit earnings. Therefore, the potentially confounding effects of long-term performance and stock-based incentive compensation present in previous research are absent. Using multiple measures of discretionary accruals, we find evidence consistent with Healy (1985) in that managers with bonus- related incentives to make income-increasing discretionary accruals do so relative to managers with incentives to use accrual discretion to decrease earnings. To the extent that external financial reporting represents an aggregation of business unit financial reports, our results highlight the importance of internal contracting as a determinant of external reporting, as conjectured by Watts and Zimmerman (1990).
