The Effect of Missing a Quarterly Earnings Benchmark on the CEO's Annual Bonus
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- 1 July 2001
- journal article
- Published by American Accounting Association in The Accounting Review
- Vol. 76 (3) , 313-332
- https://doi.org/10.2308/accr.2001.76.3.313
Abstract
We investigate the effects of missing quarterly earnings benchmarks on the CEO's annual bonus. After controlling for the general pay-for-performance relation, we find a significant incremental adverse effect on CEO annual cash bonuses when the firm's quarterly earnings fall short of the consensus analyst forecast or the earnings for the same quarter of the prior year, for at least two quarters during the year. However, we find that the relation between the bonus and the number of loss quarters is not significant. Our results suggest that CEO bonus payments provide CEOs with economic incentives to meet quarterly analyst earnings forecasts and earnings from the same quarter of the prior year.Keywords
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