Contracts tend to use a single earnings number that is either the reported earnings or a transformation of reported earnings. For example, private debt contracts use reported earnings with some GAAP measurement rules "undone" (., equity accounting for subsidiaries -see Leftwich, 1983, p. 25). And, CEO bonus plans use earnings (or transformations of earnings such as returns on invested capital) to determine 80% of CEO bonuses (Hay, 1991; Holthausen, Larcker and Sloan, 1995). It is interesting to ask why it is efficient for contracts to use a single benchmark earnings measure as a starting point for contractual provisions. Leftwich (1983, p
