Abstract
Previous studies provide mixed evidence regarding the relation between managers' equity incentives and financial misstatements. We hypothesise that the mixed results stem from measurement error in portfolio delta that reflects the joint sensitivity of a manager's stock and option portfolio to changes in equity prices. Splitting portfolio delta into stock delta and option delta, we find that option delta has a dominating effect over stock delta and vega in explaining financial misstatements and that the impact of option delta is mainly attributable to the effect of CEO's option delta, as opposed to that of CFO's option delta.
| Original language | English |
|---|---|
| Pages (from-to) | 2976-3003 |
| Number of pages | 28 |
| Journal | Accounting and Finance |
| Volume | 65 |
| Issue number | 3 |
| DOIs | |
| State | Published - Sep 2025 |
| Externally published | Yes |
Keywords
- equity incentives
- executive compensation
- financial misreporting
- option delta
- vega
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