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Fiscal Year Ends And Nonlinear Incentive Contracts: The Effect On Business Seasonality

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Author Info
Paul Oyer

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Abstract

Salesperson and executive compensation contracts typically specify a nonlinear relationship between firm revenues and pay. These agents therefore have incentive to manipulate prices, influence the timing of customer purchases, and vary effort over their firms' fiscal years. This paper empirically establishes results consistent with agents' focusing on performance over the fiscal year. Most notably, in addition to varying with the calendar business cycle, manufacturing firms' sales are higher at the end of the fiscal year,and lower at the beginning, than they are in the middle. Further evidence is found in fiscal-year price movements and patterns in the industry variation of fiscal-year effects. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Publisher Info
Article provided by MIT Press in its journal The Quarterly Journal of Economics.

Volume (Year): 113 (1998)
Issue (Month): 1 (February)
Pages: 149-185
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Handle: RePEc:tpr:qjecon:v:113:y:1998:i:1:p:149-185

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  1. Thomas Steenburgh, 2008. "Effort or timing: The effect of lump-sum bonuses," Quantitative Marketing and Economics, Springer, vol. 6(3), pages 235-256, September. [Downloadable!] (restricted)
  2. Alexander Stremme, 1999. "Optimal Compensation for Fund Managers of Uncertain Type: The Information Advantages of Bonus Schemes," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-029, New York University, Leonard N. Stern School of Business-. [Downloadable!]
  3. Adam Copeland & Cyril Monnet, 2003. "The welfare effects of incentive schemes," Finance and Economics Discussion Series 2003-08, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  4. Tsuyoshi Tsuru, 2007. "Transforming Incentives: Analysis of Personnel and Employee Output Data in a Large J apanese Auto Sales Firm," Discussion Paper Series a496, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  5. Gerald Marschke & Pascal Courty, 2000. "An Empirical Investigation of Gaming Responses to Performance Incentives," Discussion Papers 00-12, University at Albany, SUNY, Department of Economics. [Downloadable!]
  6. Fabian Herweg & Daniel Müller & Philipp Weinschenk, 2008. "The Optimality of Simple Contracts: Moral Hazard and Loss Aversion," Bonn Econ Discussion Papers bgse17_2008, University of Bonn, Germany. [Downloadable!]
  7. Chiappori, Pierre Andre & Salanie, Bernard, 2002. "Testing Contract Theory: A Survey of Some Recent Work," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  8. Orana Bandiera & Iwan Barankay & Imran Rasul, 2006. "Incentives for Managers and Inequality Among Workers: Evidence from a Firm Level Experiment," Natural Field Experiments 0015, The Field Experiments Website. [Downloadable!]
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  9. Lacetera, Nicola & Macis, Mario, 2008. "Social Image Concerns and Pro-Social Behavior," IZA Discussion Papers 3771, Institute for the Study of Labor (IZA). [Downloadable!]
  10. Gerald Marschke & Pascal Courty, 2004. "A General Test of Gaming," Discussion Papers 04-04, University at Albany, SUNY, Department of Economics. [Downloadable!]
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  11. Edward P. Lazear & Kathryn L. Shaw, 2007. "Personnel Economics: The Economist's View of Human Resources," NBER Working Papers 13653, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Jose E. Quintero Jaramillo, 2004. "Moral Hazard In Teams With Limited Punishments And Multiple Outputs," Business Economics Working Papers wb040705, Universidad Carlos III, Departamento de Economía de la Empresa. [Downloadable!]
  13. Tsuyoshi Tsuru, 2008. "Incentives, Gaming, and the Nonlinear Pay Scheme: Evidence from Personnel Data in a Large Japanese Auto Sales Firm," Discussion Paper Series a510, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  14. Thiele, Veikko, 2007. "Performance Measurement in Multi-Task Agencies," MPRA Paper 2469, University Library of Munich, Germany. [Downloadable!]
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  15. Friedman, John N. & Kelman, Steven, 2007. "Effort as Investment: Analyzing the Response to Incentives," Working Paper Series rwp07-024, Harvard University, John F. Kennedy School of Government. [Downloadable!]
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