Knowledge that Transforms

Studies examining managerial accounting decisions postulate that executives rewarded by earnings-based bonuses select accounting procedures that increase their compensation. The empirical results of these studies are conflicting. This paper analyzes the format of typical bonus contracts, providing a more complete characterization of their accounting incentive effects than earlier studies. The test results suggest that (1) accrual policies of managers are related to income-reporting incentives of their bonus contracts, and (2) changes in accounting procedures by managers are associated with adoption or modification of their bonus plan.

The papers in this volume and briefly summarized in this introduction document that: (1) executive compensation is positively related to share price performance: (2) poor firm performance is associated with increased executive turnover; (3) managers choose accounting accruals in ways that increase the value of their bonus awards; (4) the adoption of new short- and long-term executive compensation plans and golden parachutes are associated with positive share price reactions; (5) the death of a firm's founder is associated with positive share price reactions; and (6) managers are less likely to make merger bids that lower their stock prices when they hold more stock in their firm. These findings are interpreted as generally supporting the view that executive compensation packages help align managers' and shareholders' interests.

This paper examines properties of daily stock returns and how the particular characteristics of these data affect event study methodologies. Daily data generally present few difficulties for event studies. Standard procedures are typically well-specified even when special daily data characteristics are ignored. However, recognition of autocorrelation in daily excess returns and changes in their variance conditional on an event can sometimes be advantageous. In addition, tests ignoring cross-sectional dependence can be well-specified and have higher power than tests which account for potential dependence.

Intangible assets, R&D, Advertising expenses, Amortization

Auditing, Going-concern opinion, Disclosures

Budgeting, Budgetary slack, Participative budgeting, Risk aversion

Leverage, Market value of debt, Debt-Equity ratio, Risk

Chris Olsen, Valuation Implications of SFAS No. 33 Data for Electric Utility Investors, Journal of Accounting Research, Vol. 23, Studies on Accounting Earnings and Security Valuation: Current Research Issues (1985), pp. 28-47

Sue McKinley, Kurt Pany, Philip M. J. Reckers, An Examination of the Influence of CPA Firm Type, Size, and MAS Provision on Loan Officer Decisions and Perceptions, Journal of Accounting Research, Vol. 23, No. 2 (Autumn, 1985), pp. 887-896