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

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  • Andergassen, Rainer

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.

Suggested Citation

  • Andergassen, Rainer, 2008. "High-powered incentives and fraudulent behavior: Stock-based versus stock option-based compensation," Economics Letters, Elsevier, vol. 101(2), pages 122-125, November.
  • Handle: RePEc:eee:ecolet:v:101:y:2008:i:2:p:122-125
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    Cited by:

    1. Rudy Santore & Martin Tackie, 2013. "Stock option contract design and managerial fraud," Economics Bulletin, AccessEcon, vol. 33(2), pages 1283-1289.
    2. Le Maux, Benoît & Necker, Sarah & Rocaboy, Yvon, 2019. "Cheat or perish? A theory of scientific customs," Research Policy, Elsevier, vol. 48(9), pages 1-1.
    3. Cheng-Feng Cheng, 2012. "Evaluate the Effectiveness of Manager Compensation," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 11(1), pages 25-44, June.
    4. Wu, Yan Wendy, 2011. "Optimal executive compensation: Stock options or restricted stocks," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 633-644, October.
    5. Andergassen, Rainer, 2016. "Managerial compensation, product market competition and fraud," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 1-15.
    6. Yin-Hua Yeh & Zih-Heng Lai, 2014. "The Causes and Risk-Taking on the Change of CEO Equity-Based Compensation Structure," Business and Economic Research, Macrothink Institute, vol. 4(2), pages 30-48, December.
    7. Loyola, Gino & Portilla, Yolanda, 2020. "Managerial compensation as a double-edged sword: Optimal incentives under misreporting," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 994-1017.
    8. Zhu, Chunhui & Zhang, Teng & Li, Shaoyu, 2021. "Why more restricted stocks, less stock options?--An explanation based on the preference of regulators of China?," Journal of Asian Economics, Elsevier, vol. 77(C).

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