We examine alternative performance measures for a manager who has superior information about the profitability of an investment project and who contributes to periodic operating cash flows through his efforts. We find that residual income based on a suitably chosen depriation schedule is an...

To investigate how the possibility of earnings manipulation affects managerial compensation contracts, we study a two period agency setting in which a firm's manager can engage in "window dressing" activities to manipulate reported accounting earnings. Earnings manipulation boosts the reported...

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...

We examine alternative performance measures for a manager who has superior information about the profitability of an investment project and who contributes to periodic operating cash flows through his efforts. We find that residual income based on a suitably chosen depreciation schedule is an...