Earnings-based bonus plans and earnings management by business-unit managers 1 We thank the Center for Business and Economic Research (CBER) at the University of New Hampshire for financial support and Luke Boulanger and Yong Chen for research assistance. We also thank workshop participants at the JAE Conference, the 1997 American Accounting Association annual meeting, the Boston Accounting Research Colloquium (BARC), the University of Colorado, the University of Connecticut, Fairfield University, Indiana University, the University of Rochester, SUNY Buffalo, Syracuse University, and Virginia Tech. We owe particular thanks to Paul Healy (the referee and discussant) and Jerry Zimmerman (the editor), and to Daniel Beneish, Bruce Billings, Walt Blacconiere, Harry Evans, Pat Hopkins, James Horrigan, Scott Keating, S.P. Kothari, Rick Morton, Jim Patton, Charlotte Pryor, Jerry Salamon, Phil Shane, Terry Shevlin, Naomi Soderstrom, and Nathan Stuart for their helpful comments on earlier drafts. 1

Earnings-based bonus plans and earnings management by business-unit managers 1 We thank the... This study tests the bonus-maximization hypothesis that managers make discretionary accrual decisions to maximize their short-term bonuses. By using the management and financial reporting database of a large conglomerate, we extend previous investigations in two ways. First, the analysis is conducted using business unit-level data, which reduces the aggregation problem that is likely to arise using firm-level data. Second, managers in this setting are paid bonuses based solely on business unit earnings. The potentially confounding effects of long-term performance and stock-based incentive compensation are thus absent. These innovations yield robust evidence consistent with Healy (1985) . http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Accounting and Economics Elsevier

Earnings-based bonus plans and earnings management by business-unit managers 1 We thank the Center for Business and Economic Research (CBER) at the University of New Hampshire for financial support and Luke Boulanger and Yong Chen for research assistance. We also thank workshop participants at the JAE Conference, the 1997 American Accounting Association annual meeting, the Boston Accounting Research Colloquium (BARC), the University of Colorado, the University of Connecticut, Fairfield University, Indiana University, the University of Rochester, SUNY Buffalo, Syracuse University, and Virginia Tech. We owe particular thanks to Paul Healy (the referee and discussant) and Jerry Zimmerman (the editor), and to Daniel Beneish, Bruce Billings, Walt Blacconiere, Harry Evans, Pat Hopkins, James Horrigan, Scott Keating, S.P. Kothari, Rick Morton, Jim Patton, Charlotte Pryor, Jerry Salamon, Phil Shane, Terry Shevlin, Naomi Soderstrom, and Nathan Stuart for their helpful comments on earlier drafts. 1

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/lp/elsevier/earnings-based-bonus-plans-and-earnings-management-by-business-unit-Zb9MA4JBWU
Publisher
Elsevier
Copyright
Copyright © 1999 Elsevier Science B.V.
ISSN
0165-4101
D.O.I.
10.1016/S0165-4101(98)00037-8
Publisher site
See Article on Publisher Site

Abstract

This study tests the bonus-maximization hypothesis that managers make discretionary accrual decisions to maximize their short-term bonuses. By using the management and financial reporting database of a large conglomerate, we extend previous investigations in two ways. First, the analysis is conducted using business unit-level data, which reduces the aggregation problem that is likely to arise using firm-level data. Second, managers in this setting are paid bonuses based solely on business unit earnings. The potentially confounding effects of long-term performance and stock-based incentive compensation are thus absent. These innovations yield robust evidence consistent with Healy (1985) .

Journal

Journal of Accounting and EconomicsElsevier

Published: Jan 1, 1999

References

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