Nonfinancial Performance Measures and Earnings Management

Posted: 2 Aug 2007

See all articles by Hassan R. Hassabelnaby

Hassan R. Hassabelnaby

Northern Kentucky University

Emad Mohammad

McMaster University - Accounting & Financial Management Services

Amal A. Said

Northern Kentucky University

Date Written: July 30, 2007

Abstract

We examine the earnings management implications of using nonfinancial performance measures in executive compensation contracts. We argue and test that when a manager's compensation is based on financial and nonfinancial performance measures, he/she has less incentive to manipulate earnings to maximize the compensation. Using panel data covering the period 1992-2005, we compare earnings management behavior for a sample of firms that used both financial and nonfinancial measures to a matched sample of firms that based their performance measurement solely on financial measures. We consider the effect of the match between the use of nonfinancial measures and firm characteristics on earnings management behavior. The results are mainly consistent with a reduction in earnings management behavior for those firms that rely on nonfinancial performance measures in their compensation contracts.

Keywords: Nonfinancial, earnings management, artificial earnings management, real earnings management, compensation contract

Suggested Citation

Hassabelnaby, Hassan R. and Mohammad, Emad and Said, Amal A., Nonfinancial Performance Measures and Earnings Management (July 30, 2007). Available at SSRN: https://ssrn.com/abstract=1004232 or http://dx.doi.org/10.2139/ssrn.1004232

Hassan R. Hassabelnaby (Contact Author)

Northern Kentucky University ( email )

Nunn Drive// BC 305D
Highland Heights, KY 41099
United States
859-572-7720 (Phone)

HOME PAGE: http://https://www.nku.edu/academics/cob.html?

Emad Mohammad

McMaster University - Accounting & Financial Management Services ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada
905-525-9140 ext. 27432 (Phone)
905-521-8995 (Fax)

Amal A. Said

Northern Kentucky University ( email )

Nunn Drive
Highland Heights, KY 41099
United States
859.572.5499 (Phone)

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,234
PlumX Metrics