Abstract

http://ssrn.com/abstract=2040986
 
 

References (33)



 
 

Citations (1)



 


 



Optimal Contracts with Performance Manipulation


Anne Beyer


Stanford University - Graduate School of Business

Ilan Guttman


New York University - Stern Scholl of business; New York University - Stern School of Business

Ivan Marinovic


Stanford Graduate School of Business

June 4, 2014

Journal of Accounting Research, Forthcoming
Rock Center for Corporate Governance at Stanford University Working Paper No. 152

Abstract:     
We study optimal compensation contracts that (i) are designed to address a joint moral hazard and adverse selection problem and that (ii) are based on performance measures which may be manipulated by the agent at a cost. In the model, a manager is privately informed about his productivity prior to being hired by a firm. In order to incentivize the manager to exert productive effort, the firm designs a compensation contract that is based on reported earnings, which can be manipulated by the manager.

Our model predicts that (i) the optimal compensation contract is convex in reported earnings;(ii) the optimal contract is less sensitive to reported earnings than it would be absent the manager's ability to manipulate earnings; and (iii) higher costs of manipulating reported earnings (e.g., due to higher governance quality) are associated with higher firm value, lower expected level of earnings management and higher output.

Number of Pages in PDF File: 41

Keywords: Compensation, Governance, Moral Hazard, Earnings Management

Accepted Paper Series


Download This Paper

Date posted: April 17, 2012 ; Last revised: June 18, 2014

Suggested Citation

Beyer, Anne and Guttman, Ilan and Marinovic, Ivan, Optimal Contracts with Performance Manipulation (June 4, 2014). Journal of Accounting Research, Forthcoming; Rock Center for Corporate Governance at Stanford University Working Paper No. 152. Available at SSRN: http://ssrn.com/abstract=2040986 or http://dx.doi.org/10.2139/ssrn.2040986

Contact Information

Anne Beyer
Stanford University - Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States

Ilan Guttman (Contact Author)
New York University - Stern Scholl of business ( email )
No Address Available
New York University - Stern School of Business ( email )
44 West Fourth Street
New York, NY 10012
United States

Ivan Marinovic
Stanford Graduate School of Business ( email )
518 Memorial Way
Stanford, CA 94305-5015
United States
Feedback to SSRN


Paper statistics
Abstract Views: 932
Downloads: 218
Download Rank: 79,622
References:  33
Citations:  1

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo6 in 0.250 seconds