Discussion of "Equilibrium Earnings Management and Managerial Compensation in a Multiperiod Agency Setting"

Discussion of "Equilibrium Earnings Management and Managerial Compensation in a Multiperiod Agency Setting"

Review of Accounting Studies. September
2014, Vol. 19, Issue 3, Pages 1078-1085

Dutta and Fan (Rev Account Stud, 2014), this issue, study the implications of earnings management on managerial compensation, in a two-period LEN setting. They analyze the level as well as the evolution of compensation. Furthermore, they consider the possibility of joint moral hazard and adverse selection problems. I discuss the empirical implications of their analysis, in the context of a slightly more general dynamic setting, and examine the robustness of some of their results with respect to the assumption that the principal can enforce claw-backs.