Why do corporate managers misstate financial statements? The role of option compensation and other factors

Efendi, Jap; Srivastava, Anup; Swanson, Edward P.

doi:10.1016/j.jfineco.2006.05.009

Cited by 805 publications

(501 citation statements)

References 46 publications

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“…Furthermore, the transactions that caused the greatest losses were carried out by a small group of companies with the relatively highest values of Tobin's Q ratio. Efendi et al (2007) provide evidence on CEOs opportunism in an eff ort to support an overvalued stock price (in line with Jensen's theory of overvalued equity). Th ey fi nd that CEOs with substantial amounts of (in-the-money) options are more likely to issue fi nancial statements with non-GAAP accounting irregularities.…”

Section: Introductionsupporting

confidence: 69%

“…Empirical studies conducted on a larger sample in the US market by means of various methods support Jensen's hypothesis (Moeller, Schlingemann, & Stulz, 2005;Efendi, Srivastava, & Swanson, 2007;Marciukaityte & Varma, 2008;Chi & Gupta, 2009;Badertscher, 2011). Also studies based on surveys of chief fi nancial offi cers of the biggest US companies confi rm that one of the main 9 M. Kałdoński, T. Jewartowski, Agency costs of overvalued equity and earnings management motivations for earnings management is "to infl uence stock price" (Dichev, Graham, Harvey, & Rajgopal, 2016).…”

Section: Introductionmentioning

confidence: 91%

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Agency Costs of Overvalued Equity and Earnings Management in Companies Listed on WSE

Kałdoński¹,

Jewartowski²

2017

EBR

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ARTICLES Agency costs of overvalued equity and earnings management in companies listed on WSE (Michał Kałdoński, Tomasz Jewartowski) Friends or foes? Activist hedge funds and other institutional investors (Andrew Carrothers) Board ethos and institutional work: developing a corporate governance identity through developing the uk code (Donald Nordberg)Governance and fi nancing of innovative very small business (VSB): evidence from a Canadian biotechnological fi rm (Alidou Ouedraogo) Corporate governance, risk and crises in small companies: shedding light from inside the boardroom black box (Leslie Spiers) Gender diversity impact on corporate social responsibility (CSR) and Greenhouse Gas emissions in the UK (Renata Konadu)Lessons university-based business schools should learn vicariously-rather than through experience-from university athletics (Edward W. Miles) Commercialization of the education of economists versus integrity of the university (Jan Szambelańczyk) Abstract: Th e aim of the paper is to study earnings management activities of companies listed on Warsaw Stock Exchange from the perspective of Jensen's agency theory of overvalued equity (Jensen, 2005). Specifi cally, we analyze relations between equity overvaluation and various types of earnings management used by public companies between 2005 and 2015. We provide evidence partially consistent with Jensen's theory. Specifi cally, our study reveals that overvaluation intensifi es income-increasing accrual earnings management activities. However, we also fi nd that overvaluation is not followed by real transactions management activities, as opposed to previous studies based on the US market. We provide some evidence that this diff erence might be driven by external monitoring executed by large institutional investors.

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Section: Introductionsupporting

confidence: 69%

Section: Introductionmentioning

confidence: 91%

Agency Costs of Overvalued Equity and Earnings Management in Companies Listed on WSE

Kałdoński¹,

Jewartowski²

2017

EBR

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“…Most rely on agency theory (Jensen and Meckling, 1976) which focuses on the role of the CEO as a selfinterested agent. In accordance with Becker's (1968) theory of crime, this view assumes that the decision to misreport financial performance is influenced by the CEO's personal assessment of the expected benefits versus possible penalties, especially when the CEO owns stock options in the company or when the CEO's bonus payments are linked to the performance of the company (Efendi et al, 2007;Zhang et al, 2008).…”

Section: Financial Incentivesmentioning

confidence: 99%

The Role of Ethical Leadership Versus Institutional Constraints: A Simulation Study of Financial Misreporting by CEOs

Chen

2010

J Bus Ethics

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“…They identified senior management unethical attitudes, use of incentive systems and dishonest communications as important indicators of the likelihood to commit fraud or fraud risk. Efendi et al (2007) found that the likelihood of misstating financial statement increases when the CEO has a sizable amount of stock options and when firms are constrained by debt covenants. Other evidence for incentive-related fraud include: Lie (2005) and Burns and Kedia (2006).…”

Section: Define Fraudmentioning

confidence: 99%

Forensic accounting and fraud: A review of literature and policy implications

Ozili

2015

IJAES

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This review present some evidence on fraud, forensic accounting, the skills and education of the forensic investigator. Also, some explanation for the diverging views among academics and regulators in relation to detecting fraud are provided. To regulators, I address the question on why academic research in forensic accounting have little significance to inform policy. Further, I present some rich set of questions and identify a number of important directions for future research in forensic accounting. This paper is intended to stimulate debates and future research of the issues identified.

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Why do corporate managers misstate financial statements? The role of option compensation and other factors

Cited by 805 publications

References 46 publications

Agency Costs of Overvalued Equity and Earnings Management in Companies Listed on WSE

Agency Costs of Overvalued Equity and Earnings Management in Companies Listed on WSE

The Role of Ethical Leadership Versus Institutional Constraints: A Simulation Study of Financial Misreporting by CEOs

Forensic accounting and fraud: A review of literature and policy implications

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