THE IMPACT OF LONG-TERM PERFORMANCE PLANS ON ACCOUNTING CHOICES.
Item
-
Title
-
THE IMPACT OF LONG-TERM PERFORMANCE PLANS ON ACCOUNTING CHOICES.
-
Identifier
-
AAI8801761
-
identifier
-
8801761
-
Creator
-
SHERIF, HANAA ABDEL-GALIEL.
-
Contributor
-
Victor Pastena
-
Date
-
1987
-
Language
-
English
-
Publisher
-
City University of New York.
-
Subject
-
Business Administration, Accounting
-
Abstract
-
The question examined in this study is whether the adoption of long-term earning based compensations or "performance plans" controls the managers' incentives to manipulate accounting earnings to inflate their compensations. Performance plans provide managers with long term earning targets, whereas bonus schemes specify annual earning objectives. Earlier studies have examined the actual structure of the bonus plans for corporate executives and provided evidence that managers of firms with bonus plans choose accounting accruals to increase the value of their bonus awards. Although the adoption of performance plans can influence managerial accounting choices, no studies thus far have examined this proposition.;This study examines the structure of short term and long term earning based compensations "bonus schemes and performance plans." The relationship between accounting choice decisions and the parameters of both bonus schemes and performance plans is investigated. The research hypothesis predicts that the manager manipulates accounting numbers to maximize the payoff from both bonus schemes and performance plans. A model of the relationship between accrual policies of managers (as a proxy for the accounting choice decisions) and income reporting incentives of managers conditioned on the bonus and performance plan parameters is constructed. To empirically test the model, a sample of companies which compensate their executives with both bonus schemes and performance plans is collected. A chi-square test and a t-test are performed to retest the bonus model (Healy, 1985). The tests are then performed to test the study's model which considers the parameters of both bonus schemes and performance plans.;The results of retesting the bonus model are consistent with the theory (Healy, 1985) that managers choose accounting accruals to increase the value of their bonus awards. The results of testing the study's model which considers both bonus schemes and performance plans are consistent with the theory of this study. In general, an association exists between accruals and management incentives conditioned on bonus and performance plan parameters. The implication of the results would seem to be that the existence of long-term earning based compensations does not control the managers' incentives to manipulate earning to inflate their compensations.
-
Type
-
dissertation
-
Source
-
PQT Legacy CUNY.xlsx
-
degree
-
Ph.D.
-
Program
-
Business
