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...

We study a setting wherein a divisional manager undertakes personally costly effort to improve the profitability of an investment project. The manager's choice of innovation effort is subject to a holdup problem because of the ex post opportunism on the part of headquarters. We analyze and...

We incorporate fixed and variable costs into a cash flow based CAPM to investigate how each type of cost affects the cost of equity capital. A decrease in fixed costs always reduces cost of capital. With positive fixed costs, a decrease in the variable cost rate reduces cost of capital despite...