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.

Analytical form of the Probability Density Function of travel times in rectangular zone with Tchebyshev’s metric

Geometrical dependencies are being researched for analytical representation of the probability density function (pdf) for the travel time between a random, and a known or another random point in Tchebyshev’s metric. In the most popular case - a rectangular area of service - the pdf of this random variable depends directly on the position of the server. Two approaches have been introduced for the exact analytical calculation of the pdf: Ad-hoc approach – useful for a ‘manual’ solving of a specific case; by superposition – an algorithmic approach for the general case. The main concept of each approach is explained, and a short comparison is done to prove the faithfulness.