Earnings Versus Price Changes: Delivered Versus Expected Performance

Posted: 9 Sep 1996

See all articles by Michael J. Barclay

Michael J. Barclay

University of Rochester - Simon School (Deceased)

Dhananjay (Dan) K. Gode

New York University (NYU) - Department of Accounting

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: Undated

Abstract

Accounting earnings are often criticized for being manipulable by managers. However, earnings-based compensation plans are ubiquitous. Our theoretical model evaluates net cash flows, accounting earnings, and stock prices as potential performance measures and shows that earnings are often better matched with delivered performance than the other two. Thus it provides an explanation for the popularity of earnings-based compensation plans.

JEL Classification: M41, J33

Suggested Citation

Barclay, Michael J. and Gode, Dhananjay (Dan) K. and Kothari, S.P., Earnings Versus Price Changes: Delivered Versus Expected Performance (Undated). Available at SSRN: https://ssrn.com/abstract=2741

Michael J. Barclay

University of Rochester - Simon School (Deceased)

N/A

Dhananjay (Dan) K. Gode (Contact Author)

New York University (NYU) - Department of Accounting ( email )

40 West 4th Street
Suite 10-180
New York, NY 10012
United States
212-998-0021 (Phone)
212-995-4004 (Fax)

S.P. Kothari

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

E52-325
Cambridge, MA 02142
United States
617-253-0994 (Phone)
617-253-0603 (Fax)

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