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

Flora Guidry, Andrew Leone, Steve Rock

Research output: Contribution to journalArticle

202 Citations (Scopus)

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
StatePublished - Jan 1999
Externally publishedYes

Fingerprint

Bonus plans
Bonuses
Earnings management
Managers
Financial reporting
Incentive compensation
Firm-level data
Confounding
Innovation
Bonus
Conglomerate
Long-term performance
Data base

Keywords

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

ASJC Scopus subject areas

  • Accounting
  • Economics and Econometrics
  • Finance

Cite this

Earnings-based bonus plans and earnings management by business-unit managers. / Guidry, Flora; Leone, Andrew; Rock, Steve.

In: Journal of Accounting and Economics, Vol. 26, No. 1-3, 01.1999, p. 113-142.

Research output: Contribution to journalArticle

Guidry, Flora ; Leone, Andrew ; Rock, Steve. / Earnings-based bonus plans and earnings management by business-unit managers. In: Journal of Accounting and Economics. 1999 ; Vol. 26, No. 1-3. pp. 113-142.
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