REAL EARNINGS MANAGEMENT CONSTRAINTS

摘要

This paper examines the association between both short- and long-term performance incentives contained in management compensation contracts and real earnings management. Based on prior research, I identify firms that are found to engage in any of the following real earnings management activities: (1) cutting discretionary expenditures to increase income, (2) timing of income recognition from the sale of fixed assets, and (3) overproduction to decrease COGS expense. Then, I examine the extent to which the practice of real earnings management exists when short- and long-term compensation elements are present. I expect to find that the practice of RM should depend on the relative mix of short- and long-term elements contained in compensation contracts.