Research Details

Abstract

This paper examines empirically the unexpected compensation to the top managers of a sample of 45 firms that voluntarily changed to capitalizing interest on long-term construction projects during the time period 1966-1974. The cash compensation to top management increased starting the year of the accounting change compared to that of top management for a firm in the same industry of similar size. Further, a comparison of the capital expenditure per dollar of sales between the sample and a pair-matched set of firms expensing interest in the same industry suggests that the long- term construction project was not taken up by diverting funds from routine capital expenditures. Collectively, the results are consistent with an inference that the managers were rewarded in the short term for a set of actions with expected future benefits in the long term. The accounting change, which may have facilitated the expansion, appears embedded in such a set of actions.

Type

Article

Author(s)

Bala Balachandran, Ramachandran Ramanan

Date Published

1993

Citations

Balachandran, Bala, and Ramachandran Ramanan. 1993. Management Compensation Surrounding an Accounting Change and Long-Term Construction Projects. Contemporary Accounting Research.(1): 211-226.