Our evidence on the stock price reaction to the announcement of short-term executive compensation plan adoption indicates that: (1) significantly positive abnormal returns occur in the month of announcement and in the four months before the bonus plan adoption, and (2) significantly positive abnormal returns occur 10 months after the adoption announcement, returns that are associated with positive unexpected earnings. This result conflicts with semi-strong market efficiency and indicates the existence of a trading rule based on the news of bonus plan adoption.

Reviews the book "Accounting for Options: No Longer an Option," by Wanda A. Wallace and S. Duane Smith.

Executive compensation, M&A, Bidding CAR, Long-term performance plans

This study examines the association between long‐term performance plans and wealth effects accruing to stockholders of divesting firms at announcements of sell‐off proposals. The results indicate that divesting companies with long‐term performance plans experience a more favorable stock market reaction at the announcement of sell‐off proposals relative to firms without long‐term performance plans. The findings imply that long‐term performance plans serve as an effective mechanism to motivate managers to make better decisions.