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

Author

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  • Jay Junghun Lee
  • Bo Xu

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.

Suggested Citation

  • Jay Junghun Lee & Bo Xu, 2025. "What Incentivises Managers to Engage in Financial Misreporting? An Analysis of Stock Delta, Option Delta, and Vega," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 65(3), pages 2976-3003, September.
    • Handle: RePEc:bla:acctfi:v:65:y:2025:i:3:p:2976-3003
    DOI: 10.1111/acfi.70027
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    References listed on IDEAS

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