Earnings Management and Measurement Error

In this paper I consider the impact of a noisy indicator regarding a manager’s manipulative behavior on optimal effort incentives and the extent of earnings management. The analysis in this paper extends a twotask, single performance measure LEN model by including a binary random variable. I show that contracting on the noisy indicator variable is not always useful. More specifically, the principal uses the indicator variable to prevent earnings management only under conditions where manipulative behavior is not excessive. Thus, under conditions of excessive earnings management, accounting adjustments that yield a more congruent overall performance measure can be more effective than an appraisal of the existence of earnings management to mitigate the earnings management problem.

A Primer on ACTA What Europeans Should Fear about the Anti-Counterfeiting Trade Agreement

The European Commission recently published the first official draft of the Anti-Counterfeiting Trade Agreement (ACTA). The article describes the institutional background of the negotiations on ACTA and its relationship to the existing legal framework. The civil enforcement provisions and the Internet chapter are compared with the international and European instruments in the field. For the most part, ACTA will not oblige EU member states to enact rules that go beyond the already established European standards. But stricter rules could be implemented regarding injunctions against non-infringing intermediaries, strict liability rules for damages, and ex parte measures in preliminary proceedings. According to the published draft, the termination of user accounts in the case of repeated intellectual property infringement will not be mandatory for member ACTA states.

EU Commission: Comments on the “Opinion of European Academics on Anti-Counterfeiting Trade Agreement”

The “Opinion of European Academics on Anti-Counterfeiting Trade Agreement” (ACTA) of February 11, 2011, was published in 2 JIPITEC 65 (2011). Signed by more than 25 law professors and academics from across Europe who specialize in the field, this opinion addressed the following concern: Although it is uncontested that the infringement of intellectual property rights, especially in the Internet, prejudices the legitimate interests of right holders, it is still very controversial in Europe and abroad whether the enforcement standards of ACTA are balanced. The European Commission, DG Trade, has now published a document with detailed comments on the Opinion. The comments, which are also available on the website of the European Commission [http://trade.ec.europa.eu/doclib/ html/147853.htm], are republished here with the kind permission of the European Commission.