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Review of Quantitative Finance and Accounting

, Volume 18, Issue 2, pp 161–183 | Cite as

The Influence of Long-Term Performance Plans on Earnings Management and Firm Performance

  • Vernon J. Richardson
  • James F. Waegelein
Article

Abstract

Boards of directors often implement long-term performance plans (LTPP) to focus management's attention on enhancing long-term shareholder value instead of concentrating their efforts on short-term earnings. This study provides estimation results suggesting that firms that compensate managers with LTPP are associated with lower levels of managed earnings than firms that have only short-term bonus plans. In addition, we find evidence that suggests that firms with long-term performance plans have significantly higher annual returns than firms that have only short-term bonus plans. We also find that firms with long-term performance plans are typically larger firms with smaller managerial ownership and larger institutional ownership than firms without long-term performance plans.

executive compensation earnings management long-term performance plans 

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Copyright information

© Kluwer Academic Publishers 2002

Authors and Affiliations

  1. 1.School of BusinessUniversity of KansasLawrence

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