We examine the extent to which firms use past performance as a basis for setting earnings targets in their bonus plans and assess the implications of such targets for managerial incentives. We find that high-profitability firms commonly reduce earnings targets when their managers fail to meet...

This paper presents a model of strategic behavior by a privately informed trader and liquidity traders near to the anticipated release of public signals such as earnings announcements. The private information of the informed trader is long-lived in the sense that the public signal does not...

We use a linear contracting framework to study how the relation between performance measures used in an agent's incentive contract and the agent's private pre-decision information affects the value of delegating decision rights to the agent. The analysis relies on the idea that available...

<heading id="h1" level="1" implicit="yes" format="display">ABSTRACT</heading>We examine how firms design bonus plans of their CFOs. CFOs participate in decision making much like other executives, but they also have significant fiduciary responsibilities for reporting firms' financial results. Responsibility for financial reporting raises the question of whether...