A concave relation between equity-based incentives and misreporting

Jae Hwan Ahn, S.Z.A. Shah, Gitae Park

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


A fraud mechanism, where managers inflate stock prices via misreporting for post-misreporting insider trading, is well captured by the delta of their equity portfolio. But a widely accepted view in the literature is that the impact of delta on misreporting is unclear because delta-related rewards (e.g., gains from insider trading) and risks (e.g., detection of fraud) likely offset each other. In this paper, we predict and find a concave association between managers’ portfolio delta and misreporting propensity, and the misreporting curve’s changing maximum points depending on the levels of various risk and reward factors. Our results are consistent with managers who reduce opportunistic misreporting at a higher level of equity incentives to avoid the increasing marginal costs of misreporting.
Original languageEnglish
Article number107134
Number of pages12
JournalJournal of Accounting and Public Policy
Issue number5
Early online date14 Sep 2023
Publication statusPublished - 14 Sep 2023

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