EXECUTIVE INCENTIVE COMPENSATION AND EARNINGS MANIPULATION IN A MULTIPERIOD SETTING

This study examines in a multi-period setting how trading of equity se curities by managers and the awarding of such securities to managers a ffects earnings manipulation. The study explores the effect of an exec utive incentive compensation plan, comprised of bonus and equity holdi ngs, on the reporting strategy of the manager under different degrees of market efficiency. The findings indicate that insider trading provi des an informative signal about the direction of earnings manipulation . Furthermore, the results confirm that the choice of compensation sch eme by owners tends to affect earnings manipulation.