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MD. Akter Hossain- 14021

MD. Akhter Hossain- 14025
MD. Kowser Bhuiyan- 14083
Farhana Yasmin- 14024
MD. Al-Amin- 14032
MD. Moniruzzaman- 14035
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Earnings Management from the Bottom Up: An Analysis of
Managerial Incentives Below the CEO

Felix Oberholzer-Gee, Harvard University & NBER
Julie Wulf, Harvard University & NBER

Date of publication: August, 2012.
The primary data set used in this study includes a panel of more than 300 publicly traded
U.S. firms over the years 1986-1999, spanning a number of industries. The survey
sample is most representative of Fortune 500 firms.
Performance-based pay contracts are a critical instrument to align the
interests of principals and agents.

Different studies linked between the structure of chief executive officer
(CEO) compensation and various measures of earnings manipulation.

Examples of managers at lower levels in the corporate hierarchy cooking
the books,


This literature is extended in the three broad ways:
First, performance pay for CEOs, division managers, and CFOs.
Second, developed models measure earnings manipulation from changes in
compensation.
Third, they tested for earnings manipulation using a variety of proxies,
including a new measure of firm-specific excess 4th-quarter sales and incidence
of future lawsuits.

Four broad results were found:

First, they found a systematic association between pay below the level of CEO
with earnings manipulation.

Second, earnings manipulation occurs through both changes in discretionary
current accruals and through the manipulation of 4th-quarter sales.

Third, stock options, the focus of many recent studies, seem to encourage
earnings manipulation in the sample as well. For instance, firms whose CFOs
receive a large number of options report higher discretionary current accruals,
larger excess 4th quarter sales and greater likelihood of future lawsuits.

Fourth, traditional forms of compensation such as bonus schemes also invite
gaming.
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