Abstract
Our evidence on the stock price reaction to the announcement of short-term executive compensation plan adoption indicates that: (1) significantly positive abnormal returns occur in the month of announcement and in the four months before the bonus plan adoption, and (2) significantly positive abnormal returns occur 10 months after the adoption announcement, returns that are associated with positive unexpected earnings. This result conflicts with semi-strong market efficiency and indicates the existence of a trading rule based on the news of bonus plan adoption.
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