Work

What Incentivises Managers to Engage in Financial Misreporting? An Analysis of Stock Delta, Option Delta, and Vega

Year: 2025

Type: article

Abstract: 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.

Source: Accounting and Finance

DOI: 10.1111/acfi.70027

Authors: Jay Junghun Lee, Bo Xu

Institutions: University of Massachusetts Boston, Harbin Institute of Technology

Language: English

Topic: Auditing, Earnings Management, Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: bronze

Funders: University of Massachusetts Boston, Harbin Institute of Technology, National Office for Philosophy and Social Sciences, National Social Science Fund of China

Award: G4583832019