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

Vernon J Richardson and James F Waegelein

Review of Quantitative Finance and Accounting, 2002, vol. 18, issue 2, 83 pages

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. Copyright 2002 by Kluwer Academic Publishers

Date: 2002
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