Management compensation contracts and merger-induced abnormal returns

Article Abstract:

The relationship between long-term performance compensation plans and merger-induced abnormal returns is examined. Incentive conflicts that arise from the time horizon of long-term management performance plans are addressed, and the possible impact of these conflicts on managers' motivation to engage in acquisition activities is discussed. The question of whether bidding firms with long-term performance plans have higher abnormal stock returns at acquisition announcements than firms without these plans is examined. The results indicate that bidding firms with long-term performance plans have a more favorable stock market reaction at acquisition announcements than firms without long-term plans. Also, firms with long-term performance plans show a larger increase in post-acquisition earnings per share. A discussion of the article by W. Bruce Johnson is included.

Acquisitions and mergers, Accounting and auditing

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An investigation of asset write-downs and concurrent abnormal accruals

Article Abstract:

Companies affirming permanent asset impairment in financial statements are examined to determine if they are engaged in earnings management in the year of the write-down. Anecdotal evidence indicates that firms use their discretion over asset write-downs to manage earnings. A model of abnormal accruals that tries to regulate changes in a firm's economic environment shows that abnormal accruals in the year of the asset write down are significantly negative. Earnings decomposition reveals a strong link between abnormal accruals in the write-down year and contemporaneous returns. The results indicate that abnormal accruals in the write-down year are reliable indicators of firm value.

Analysis, Portfolio management, Accrual basis accounting

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The relation between insider-trading restrictions and executive compensation

Article Abstract:

The author finds that firms will need to increase incentive-based executive compensation due to restrictions on company level insider trading.

United States, Personnel administration, Models, Insider trading in securities, Insider trading (Securities)

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