Annual bonus schemes and the manipulation of earnings

Annual bonus schemes and the manipulation of earnings Using confidential data of executive-specific short-term bonus plans, we investigate the extent to which executives manipulate earnings to maximize the present value of bonus plan payments. As such, this paper extends the work of Healy (1985). Like Healy, we find evidence consistent with the hypothesis that managers manipulate earnings downwards when their bonuses are at their maximum. Unlike Healy, we find no evidence that managers manipulate earnings downwards when earnings are below the minimum necessary to receive any bonus. We demonstrate that Healy's results at the lower bound are likely to be induced by his methodology. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Annual bonus schemes and the manipulation of earnings

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Publisher
Elsevier
Copyright
Copyright © 1995 Elsevier Ltd
ISSN
0165-4101
D.O.I.
10.1016/0165-4101(94)00376-G
Publisher site
See Article on Publisher Site

Abstract

Using confidential data of executive-specific short-term bonus plans, we investigate the extent to which executives manipulate earnings to maximize the present value of bonus plan payments. As such, this paper extends the work of Healy (1985). Like Healy, we find evidence consistent with the hypothesis that managers manipulate earnings downwards when their bonuses are at their maximum. Unlike Healy, we find no evidence that managers manipulate earnings downwards when earnings are below the minimum necessary to receive any bonus. We demonstrate that Healy's results at the lower bound are likely to be induced by his methodology.

Journal

Journal of Accounting and EconomicsElsevier

Published: Feb 1, 1995

References

  • Detecting earnings management
    Dechow, P.; Sloan, R.; Sweeney, A.
  • Chief executive compensation: A study of the intersection of markets and political processes
    Finkelstein, S.; Hambrick, D.
  • Additional evidence of bonus plans and income management
    Gaver, J.; Gaver, K.; Austin, J.

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