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High-powered incentives and fraudulent behavior: Stock-based versus stock option-based compensation

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Author Info
Andergassen, Rainer

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Abstract

This paper examines the trade-off shareholders face between providing managers with incentives to exert beneficial effort and to engage in costly fraudulent activity. We provide a solution to the optimal compensation problem, given that shareholders can either grant (restricted) stock or stock options and given fixed average compensation costs.

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File URL: http://www.sciencedirect.com/science/article/B6V84-4SYTC5F-6/2/1f9c8ded0e1a21d0cc61f8f2f202dd09
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Publisher Info
Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 101 (2008)
Issue (Month): 2 (November)
Pages: 122-125
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Handle: RePEc:eee:ecolet:v:101:y:2008:i:2:p:122-125

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Web page: http://www.elsevier.com/locate/ecolet

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Related research
Keywords: Executive compensation Executive stock options Restricted stock Fraud Incentives;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Michael C. Jensen, 2003. "Paying People to Lie: the Truth about the Budgeting Process," European Financial Management, Blackwell Publishing Ltd, vol. 9(3), pages 379-406. [Downloadable!] (restricted)
  2. Angelo Baglioni & Luca Colombo, 2009. "Managers' Compensation And Misreporting: A Costly State Verification Approach," Economic Inquiry, Western Economic Association International, vol. 47(2), pages 278-289, 04. [Downloadable!] (restricted)
  3. Brian J. Hall & Kevin J. Murphy, 2000. "Optimal Exercise Prices for Executive Stock Options," NBER Working Papers 7548, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Baruch Lev, 2003. "Corporate Earnings: Facts and Fiction," Journal of Economic Perspectives, American Economic Association, vol. 17(2), pages 27-50, Spring. [Downloadable!] (restricted)
  5. Teoh, Siew Hong & Welch, Ivo & Wong, T. J., 1998. "Earnings management and the underperformance of seasoned equity offerings1," Journal of Financial Economics, Elsevier, vol. 50(1), pages 63-99, October. [Downloadable!] (restricted)
  6. Michael C. Jensen, 2004. "The Agency Costs of Overvalued Equity and the Current State of Corporate Finance," European Financial Management, Blackwell Publishing Ltd, vol. 10(4), pages 549-565. [Downloadable!] (restricted)
  7. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 49-70, Summer. [Downloadable!] (restricted)
  8. Brian J. Hall & Kevin J. Murphy, 2003. "The Trouble with Stock Options," NBER Working Papers 9784, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Degeorge, Francois & Patel, Jayendu & Zeckhauser, Richard, 1999. "Earnings Management to Exceed Thresholds," Journal of Business, University of Chicago Press, vol. 72(1), pages 1-33, January. [Downloadable!] (restricted)
    Other versions:
  10. Murphy, Kevin J., 1999. "Executive compensation," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 38, pages 2485-2563 Elsevier. [Downloadable!] (restricted)
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