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...

This paper analyzes the impact of signal-to-noise-ratios and the autocorrelation of a performance measure on the principal's welfare in dynamic agencies with renegotiation. We consider the impact of changes in the persistent, transitory, and reversible components of accounting earnings on its...

We examine the economic consequences of the recent adoption of SFAS 123(R) in the United States. Consistent with the conjectures of prior research, our results show that the removal of favorable accounting treatment for stock options post SFAS 123(R) results in a switch from stock options to...

Firms can report comprehensive income in either an income-statement-like performance statement or the statement of equity. Traditional theories of contracting incentives cannot explain this reporting location choice that only affects where comprehensive income data appear, because the...

We examine changes in firms' discretionary accounting accruals around the commencement of activism by hedge funds. We argue that hedge funds have the potential to provide increased monitoring of earnings management behavior and we predict and find empirically that average discretionary accruals...

Objective - The purpose of this research is to obtain empirical research on the effect of corporate governance on earnings management in distressed and non-distressed companies. Corporate governance in this research is measured by independent board, audit committee, board of commissioners,...

The incentive effect of CEO portfolio delta (i.e., the sensitivity of CEO wealth to changes in stock price) on financial misreporting is inconclusive given a complex reward-risk tradeoff faced by CEOs (e.g., a positive “reward effect” versus a negative “risk effect”). We propose that the...

We examine the relationship between equity incentives and earnings management in the banking industry. By focusing on this regulated industry and using industry-specific earnings management proxies, we provide evidence on the impact of regulation on earnings management arising from CEOs' equity...

Research in incentives has focused on performance measures and pay-performance sensitivities but has largely ignored a third significant dimension: the performance standard. Performance standards generate important incentives whenever plan participants can influence the standard-setting process....

This paper analyzes the links between corporate tax avoidance and the growth of high-powered incentives for managers. We develop a simple model that highlights the role of feedback effects between tax sheltering and managerial diversion in determining how high-powered incentives influence tax...