Abstract

http://ssrn.com/abstract=547922
 
 

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Why Do Corporate Managers Misstate Financial Statements? the Role of Option Compensation and Other Factors


Jap Efendi


University of Texas at Arlington

Anup Srivastava


Tuck Dartmouth

Edward P. Swanson


Texas A&M University - Mays Business School

April 2, 2007


Abstract:     
We investigate incentives that led to the rash of restated financial statements at the end of the 1990s market bubble. We find the likelihood of a misstated financial statement increases greatly when the CEO has very sizable holdings of stock options "in-the-money" (i.e., stock price above exercise price). Misstatements are also more likely for firms that are constrained by an interest-coverage debt covenant, raise new debt or equity capital, or have a CEO who serves as board chair. Our results indicate that agency costs increased (Jensen 2005a) as substantially overvalued equity caused managers to take actions to support the stock price.

Number of Pages in PDF File: 62

Keywords: restatements, stock options, executive compensation, agency theory, overvalued equity

JEL Classification: M14, M41, M43, M52, K22, J33, G34

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Date posted: May 6, 2005  

Suggested Citation

Efendi, Jap and Srivastava, Anup and Swanson, Edward P., Why Do Corporate Managers Misstate Financial Statements? the Role of Option Compensation and Other Factors (April 2, 2007). Available at SSRN: http://ssrn.com/abstract=547922 or http://dx.doi.org/10.2139/ssrn.547922

Contact Information

Jap Efendi
University of Texas at Arlington ( email )
415 S West St Apt no 205
Arlington, TX 76019
United States
Anup Srivastava
Tuck Dartmouth ( email )
Hanover, NH
United States
Edward P. Swanson (Contact Author)
Texas A&M University - Mays Business School ( email )
430 Wehner
College Station, TX 77843-4353
United States
979-845-8970 (Phone)
979-845-0028 (Fax)
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