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What is meant by the phrase earnings management

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Reference no: EM132295619

Question 1

Much of our discussion this term focused on CEO compensation.

(a) Briefly describe the "ratchet effect" associated with the use of peer groups in setting compensation levels. Why is it a problem?

(b) Some people suggest that using stock options as compensation tends to encourage risk-taking behavior on the part of executives. Why might this be the case?

Question 2

(a) Describe what is meant by the phrase "earnings management" and briefly describe how it is measured.

(b) Is the tendency to engage in earnings management affected by corporate governance? If so, how?

Reference no: EM132295619

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