Earnings-based bonus plans and earnings management by business-unit managers

Flora Guidry, Andrew J. Leone, Steve Rock

Research output: Contribution to journalArticle

219 Scopus citations

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 .

Original languageEnglish (US)
Pages (from-to)113-142
Number of pages30
JournalJournal of Accounting and Economics
Volume26
Issue number1-3
DOIs
StatePublished - Jan 1999

Keywords

  • Bonus plans
  • Discretionary accruals
  • Earnings management
  • J33
  • M41

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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