Nonfinancial performance measures and earnings management

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Advances in Management Accounting

ISSN: 1474-7871
Series editor(s): Professor Marc Epstein and Professor John Y. Lee

Subject Area: Accounting and Finance

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Document Information:
Title:	Nonfinancial performance measures and earnings management
Author(s):	Hassan R. HassabElnaby, Emad Mohammad, Amal A. Said
Volume:	18 Editor(s): Marc J. Epstein, John Y. Lee ISBN: 978-1-84950-754-7 eISBN: 978-1-84950-755-4
Citation:	Hassan R. HassabElnaby, Emad Mohammad, Amal A. Said (2010), Nonfinancial performance measures and earnings management, in Marc J. Epstein, John Y. Lee (ed.) Advances in Management Accounting (Advances in Management Accounting, Volume 18), Emerald Group Publishing Limited, pp.55-79
DOI:	10.1108/S1474-7871(2010)0000018006 (Permanent URL)
Publisher:	Emerald Group Publishing Limited
Article type:	Chapter Item
Abstract:	We examine the earnings management implications of using nonfinancial performance measures (NFPM) in executive compensation contracts. We argue and test that when a manager's compensation is based on financial and NFPM, he/she has less incentive to manipulate earnings to maximize 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. The results are mainly consistent with a reduction in earnings management behavior for those firms that rely on NFPM in their compensation contracts.