Using a detailed data set of employee stock option grants, we compare observed stock-option-based pay plans to hypothetical cash-only or restricted-stock-based plans. We make a variety of assumptions regarding the possible benefits of options relative to cash or stock, and then use observed...

We study an extension of a two-period inventory management problem with positively correlated demands in which the manager's compensation is partially based on an external, market-based assessment of the firm's value. As typically the "real'' demand is only observed internally in the firm, the...

In this paper, I examine issues relating to managers' ability to influence their performance evaluation. In contrast to conventional wisdom, I show that such influencing is not necessarily deleterious to shareholder welfare, despite the fact that it is aimed at maximizing the managers'...

In this paper, we consider the maintained assumption in previous earnings-management research that budgets are static through time (fixed-target assumption) versus the common belief in practice that budgets ratchet. Using business-unit data from a large multinational corporation, we find...

The New Zealand (NZ) Government began its public sector reforms in 1984. The purposes of the reforms were to build a more open public sector, a plainer and clearer way of reporting, emphasising accountability and transparency (Wallace, 1993). A central focus of the reforms was to change the...

The synthetic lease is a hybrid financing structure that allows a company to obtain many of the benefits of asset ownership, including capital lease treatment for tax purposes, while treating lease payments as operating expenses on the firm's income statement. Proponents of these off balance...

Consider the following puzzle: If earnings management is harmful to shareholders, why don't they design contracts that induce managers to reveal the truth? To answer this question, we model the shareholders-manager relationship as a principal-agent game in which the agent (the manager) alone...

SFAS 142 requires managers to estimate the current fair value of goodwill to determine goodwill write-offs. In promulgating the standard, the FASB predicted managers will, on average, use the fair value estimates to convey private information on future cash flows. The current fair value of...

Public disclosure about effectiveness of internal control systems is subject to much controversy in Canada, resulting in Canadian disclosures being made in Management Discussion and Analysis (MDamp;A). These disclosures are provided to investors without a definition of the weaknesses to be...

We analyze the optimal behavior of an organization when its employees can manipulate the organization's accounting system to their private advantage. We find that the organization may benefit by helping its employees manipulate the system. This help can reduce the employees' private returns from...