This paper analyzes the optimal design of compensation contracts in the presence of earnings management incentives, and its interplay with investors' information acquisition decisions. We consider a setting in which compensation contract is based on both accounting earnings and stock price when...

The joint provision of audit and non-audit services by audit firms to their audit clients has posed a threat to auditor independence. To mitigate the independence problem, the U.S. Securities and Exchange Commission (SEC) issued a regulation (SEC 2003) that prohibits audit partners from...