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Managers Incentive And Earnings Management
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Book Synopsis Executive Compensation and Earnings Management Under Moral Hazard by : Bo Sun
Download or read book Executive Compensation and Earnings Management Under Moral Hazard written by Bo Sun and published by DIANE Publishing. This book was released on 2010-08 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Book Synopsis Earnings Management from the Bottom Up by : Felix Oberholzer-Gee
Download or read book Earnings Management from the Bottom Up written by Felix Oberholzer-Gee and published by . This book was released on 2012 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: Performance-based pay is an important instrument to align the interests of managers with the interests of shareholders. However, recent evidence suggests that high-powered incentives also provide managers with incentives to manipulate the firm's reported earnings. The previous literature has focused primarily on Chief Executive Officers, but managers further down in the firm hierarchy-division managers and Chief Financial Officers-- are likely to have similar incentives, and perhaps even greater opportunity to influence reported earnings in a manner that maximizes these managers' personal income. Moreover, previous research focuses on equity incentives and largely ignores other elements of incentive pay. We contribute to this literature by analyzing all forms of incentive pay for several types of managerial positions and include additional measures of earnings manipulation--end-of-year excess sales and class action litigation-in addition to the standard measure of discretionary accounting accruals. We find that the association between high-powered incentives and earnings manipulation varies by both type of incentive pay and position. Our findings have important policy implications and suggest that compensation committees should review pay policies of other managerial positions in addition to CEOs. Importantly, if the committees wanted to weaken incentive pay to get more truthful reporting, diluting the CFO's bonus and stock options would be one place to start.
Download or read book The Corporate Board written by Ada Demb and published by Oxford University Press. This book was released on 1992-04-02 with total page 225 pages. Available in PDF, EPUB and Kindle. Book excerpt: Written for practitioners, this book addresses corporate governance and the role of the board of directors in multinational corporations. Throughout the world, corporations are experiencing the second major transition in corporate governance of this century. The nature of the relationship between the corporation and the rest of society is changing fundamentally. The corporate board has unique responsibilities during this transition, but as it tries to respond directors are faced with destabilizing paradoxes: resolving who is in control--management or the board, achieving critical judgment while maintaining detachment, and avoiding becoming either a cozy club or a collection of all-stars. This book, based on interviews with 71 directors serving on more than 500 boards in eight countries, shows the nature of the challenges and suggests ways to analyze and confront them. This major international study compares the experiences of board members in Canada, Finland, France, Germany, Great Britain, the Netherlands, Switzerland, and Venezuela.
Book Synopsis Introduction to Earnings Management by : Malek El Diri
Download or read book Introduction to Earnings Management written by Malek El Diri and published by Springer. This book was released on 2017-08-20 with total page 120 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book provides researchers and scholars with a comprehensive and up-to-date analysis of earnings management theory and literature. While it raises new questions for future research, the book can be also helpful to other parties who rely on financial reporting in making decisions like regulators, policy makers, shareholders, investors, and gatekeepers e.g., auditors and analysts. The book summarizes the existing literature and provides insight into new areas of research such as the differences between earnings management, fraud, earnings quality, impression management, and expectation management; the trade-off between earnings management activities; the special measures of earnings management; and the classification of earnings management motives based on a comprehensive theoretical framework.
Book Synopsis Earnings-Based Bonus Plans and Earnings Management by Business Unit Managers by : Flora Guidry
Download or read book Earnings-Based Bonus Plans and Earnings Management by Business Unit Managers written by Flora Guidry and published by . This book was released on 1997 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: 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).
Book Synopsis Earnings Management by : Joshua Ronen
Download or read book Earnings Management written by Joshua Ronen and published by Springer Science & Business Media. This book was released on 2008-08-06 with total page 587 pages. Available in PDF, EPUB and Kindle. Book excerpt: This book is a study of earnings management, aimed at scholars and professionals in accounting, finance, economics, and law. The authors address research questions including: Why are earnings so important that firms feel compelled to manipulate them? What set of circumstances will induce earnings management? How will the interaction among management, boards of directors, investors, employees, suppliers, customers and regulators affect earnings management? How to design empirical research addressing earnings management? What are the limitations and strengths of current empirical models?
Book Synopsis Executive Compensation and Earnings Management Under Moral Hazard by : Bo Sun
Download or read book Executive Compensation and Earnings Management Under Moral Hazard written by Bo Sun and published by . This book was released on 2009 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes executive compensation in a setting where managers may take a costly action to manipulate corporate performance, and whether managers do so is stochastic. We examine how the opportunity to manipulate affects the optimal pay contract, and establish necessary and sufficient conditions under which earnings management occurs. Our 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.
Book Synopsis Earnings Management and Dynamic Incentives by : Sunil Dutta
Download or read book Earnings Management and Dynamic Incentives written by Sunil Dutta and published by . This book was released on 2015 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the impact of earnings management on incentives and welfare in a two-period agency setting. Managerial performance measures are positively correlated because of a time-invariant productivity component that aff ects earnings in both periods. The firm and the manager learn about this permanent earnings component over time and cannot commit not to revise the contract terms in light of updated information. While learning over time reduces uncertainty, its strengthening eff ect on the second period incentive rate is o set by the need to mitigate earnings inflation. We fi nd that when the uncertainty about permanent earnings is large enough, allowing some earnings management can enhance welfare because the effi ciency gain from the manager's reduced risk exposure can outweigh the deadweight cost of earnings management. We also consider a career concern setting in which the permanent component of earnings relates to managerial ability. Contrary to Gibbons and Murphy (1992), we fi nd that incentive rates and productive eff orts can decline over the manager's tenure.
Book Synopsis Can Managerial Knowledge of Executive Compensation Encourage Or Deter Real Earnings Management? by : Andrea L. Gouldman
Download or read book Can Managerial Knowledge of Executive Compensation Encourage Or Deter Real Earnings Management? written by Andrea L. Gouldman and published by . This book was released on 2013 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines the effects of research and development (R&D) reporting method and managerial knowledge of supervisor compensation on R&D project continuation decisions. The current study employs an experiment with a 2x3 between-participants design, manipulating both R&D reporting method (expense vs. capitalize) and knowledge of supervisor compensation (control group with no knowledge vs. knowledge of non-restricted stock compensation vs. knowledge of restricted stock compensation). Using salient short-term incentives to motivate real earnings management, this study demonstrates that capitalization may result in managers foregoing economically efficient R&D investment opportunities. The results indicate that managerial knowledge of supervisor compensation structure has little influence on managers' R&D project continuation choices. However, when managers capitalizing R&D expenditures had knowledge that their supervisors received non-restricted (short-term) stock compensation their perceived personal responsibility for the decision significantly decreased. Participants who capitalized R&D expenditures and had knowledge that their supervisor received restricted (long-term) stock compensation rated the importance of making a decision to please their supervisor significantly higher than all other participants. Additionally, participants with knowledge that their supervisors restricted stock compensation were significantly more concerned about the likelihood of negative personal repercussions regardless of R&D reporting method. These findings contribute to the management accounting literature by providing new insights on the influence of knowledge of supervisor compensation on managerial decision making as well as additional insights into the factors that contribute to and limit real earnings management. This study also extends the literature on R&D by providing evidence of the potential for real earnings management when R&D expenditures are capitalized in the absence of personal responsibility.
Book Synopsis Incentives, Opportunities, and Earnings Management Using Tax Expense by : Erik Beardsley
Download or read book Incentives, Opportunities, and Earnings Management Using Tax Expense written by Erik Beardsley and published by . This book was released on 2019 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Prior studies that examine the effect of managerial incentives on investment or misreporting decisions typically hold firm characteristics constant and focus on a particular managerial incentive. However, managers' responses to different types of incentives likely depend on firm characteristics that create opportunities to respond to those incentives. Using year-end tax expense manipulations as our setting, we examine the extent to which equity incentives, firm characteristics that create opportunities, and their interaction are associated with the decision to manage earnings. We show that stock price incentives (portfolio delta), risk-taking incentives (portfolio vega), and firm characteristics that create opportunities are associated with a greater propensity for firms to manage earnings using tax expense. Importantly, we find that portfolio delta has a greater effect on the earnings management decision when firm opportunities are higher, while we do not find evidence that the effect of portfolio vega varies with firm opportunities. Collectively, our results suggest that managers respond to stock price and risk-taking incentives differently depending on their opportunity sets.
Book Synopsis CSR-Contingent Executive Compensation Incentive and Earnings Management by : Zhichuan Frank Li
Download or read book CSR-Contingent Executive Compensation Incentive and Earnings Management written by Zhichuan Frank Li and published by . This book was released on 2019 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper empirically studies the connection between earnings management and corporate social performance, conditional on the existence of CSR-contingent executive compensation contracts, an emerging practice to link executive compensation to corporate social performance. We find that executives are more likely to manipulate earnings to achieve their personal compensation goals when CSR rating is low, as well as their CSR-contingent compensation. Because of public pressure on their excessive total compensation, corporate executives see no need to manipulate earnings to increase compensation when their CSR-contingent compensation is already high. Our results suggest that earnings management and CSR-contingent compensation are substitute tools to serve the interests of executives, which is an agency problem that was never previously studied. Additionally, we explore how managerial characteristics affect earnings management, driven by the incentive effects of CSR-linked compensation.
Book Synopsis Empirical Evidence of an Incentive Problem and Related Earnings Management in Cable Television Public Limited Partnerships by : Richard Mark Mason
Download or read book Empirical Evidence of an Incentive Problem and Related Earnings Management in Cable Television Public Limited Partnerships written by Richard Mark Mason and published by . This book was released on 2002 with total page 230 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Manager's Incentive and Earnings Management by : Nora Sri Hendriyeni
Download or read book Manager's Incentive and Earnings Management written by Nora Sri Hendriyeni and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Earnings Management, Conservatism, and Earnings Quality by : Ralf Ewert
Download or read book Earnings Management, Conservatism, and Earnings Quality written by Ralf Ewert and published by . This book was released on 2012 with total page 142 pages. Available in PDF, EPUB and Kindle. Book excerpt: Earnings Management, Conservatism, and Earnings Quality reviews and illustrates earnings management, conservatism, and their effects on earnings quality in an economic modeling framework. Both earnings management and conservative accounting introduce biases to financial reports. The fundamental issue addressed is what economic effects these biases have on earnings quality or financial reporting quality. Earnings Management, Conservatism, and Earnings Quality reviews analytical models of earnings management and conservatism and shows that both can have beneficial or detrimental economic effects, so a differentiated view is appropriate. Earnings management can provide additional information via the financial reporting communication channel, but it can also be used to misrepresent the firm's position. What the authors find is that similar to earnings management, conservatism can reduce the information content of financial reports if it suppresses relevant information, but it can be a desirable feature that improves economic efficiency. The approach to study earnings management, conservatism, and earnings quality is based on the information economics literature. A variety of analytical models are reviewed that capture the effects and subtle interactions of managers' incentives and rational expectations of users. The benefit of analytical models is to make precise these, often highly complex, strategic effects. They offer a rigorous explanation for the phenomena and show that sometimes conventional wisdom does not apply. The monograph is organized around a few basic model settings, which are presented in simple versions first and then in extensions to elicit the main insights most clearly. Chapter 2 presents the basic rational expectations equilibrium model with earnings management and rational inferences by the capital market. Chapter 3 is devoted to earnings quality and earnings quality metrics used in many studies. Chapter 4 studies conservatism in accounting. Finally, the authors examine the interaction between conservatism and earnings management. Each chapter ends with a section containing a summary of the main findings and conclusions.
Book Synopsis The Economics of Earnings Manipulation and Managerial Compensation by : Keith J. Crocker
Download or read book The Economics of Earnings Manipulation and Managerial Compensation written by Keith J. Crocker and published by . This book was released on 2006 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines managerial compensation in an environment where managers may take a hidden action that affects the actual earnings of the firm. When realized, these earnings constitute hidden information that is privately observed by the manager, who may expend resources to generate an inflated earnings report. We characterize the optimal managerial compensation contract in this setting, and demonstrate that contracts contingent on reported earnings cannot provide managers with the incentive both to maximize profits, and to report those profits honestly. As a result, some degree of earnings management must be tolerated as a necessary part of an efficient agreement
Book Synopsis Earnings Management. The Influence of Real and Accrual-Based Earnings Management on Earnings Quality by :
Download or read book Earnings Management. The Influence of Real and Accrual-Based Earnings Management on Earnings Quality written by and published by GRIN Verlag. This book was released on 2024-01-31 with total page 81 pages. Available in PDF, EPUB and Kindle. Book excerpt: Master's Thesis from the year 2019 in the subject Business economics - Accounting and Taxes, University of Duisburg-Essen, course: Master Thesis, language: English, abstract: This paper delves into various theories and approaches, aiming to define and differentiate earnings management from related concepts such as fraud, expectation management, and impression management. It explores the goals and incentives driving earnings management, including maximizing or minimizing earnings, beating targets, and smoothing. At the onset of the new millennium, corporate scandals rocked the business world, eroding trust in management, boards of directors, and the accounting profession. In response, regulations and policies aimed at enhancing corporate governance and financial reporting were swiftly implemented. The credibility, clarity, and consistency of financial reporting practices play a pivotal role in enabling investors to make informed decisions. Accurate and fair financial performance representations, as opposed to inflated and misleading figures, are essential for market players, including shareholders and creditors. Investors rely on audited financial reports to guide their investment decisions, underscoring the critical importance of accuracy and reliability in publicly available financial disclosures. Auditors, by reducing the risk of material misstatement, ensure the integrity of the information disclosed in a company's financial statements. Management, with the goal of achieving promised targets and ensuring the company's existence, may engage in earnings management as a strategic contribution to corporate policy. Financial reporting serves as a means to distinguish well-performing companies from their counterparts, facilitating efficient resource allocation and empowering stakeholders to make effective decisions. The disclosed earnings results significantly impact a firm's overall business activities and management decisions, particularly in satisfying analysts' expectations, which can influence equity value. While accounting standards play a role, the quality of financial statements is more influenced by company-specific and institutional factors shaping managers' incentives. These factors lead to financial reporting practices being viewed as the outcome of a cost-benefit assessment.
Book Synopsis The Economics of Earnings Manipulation and Managerial Compensation by : Keith J. Crocker
Download or read book The Economics of Earnings Manipulation and Managerial Compensation written by Keith J. Crocker and published by . This book was released on 2010 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines managerial compensation in an environment where managers may take a hidden action that affects the actual earnings of the firm. When realized, these earnings constitute hidden information that is privately observed by the manager, who may expend resources to generate an inflated earnings report. We characterize the optimal managerial compensation contract in this setting, and demonstrate that contracts contingent on reported earnings cannot provide managers with the incentive both to maximize profits, and to report those profits honestly. As a result, some degree of earnings management must be tolerated as a necessary part of an efficient agreement.
