Measuring Misreporting Incentives and Severity

• 成果类型: Article; Early Access
• 署名作者: Cao, Wenjiao; Jia, Yuping; Zeng, Yachang
• 署名单位: Erasmus University Rotterdam; Erasmus University Rotterdam - Excl Erasmus MC; Frankfurt School Finance & Management; Nanyang Technological University
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2022.00160
• 发表日期: 2025
• 关键词: agency conflicts; misreporting incentives; misreporting severity; AAER

摘要

We propose an empirical measure of the types of financial misreporting based on misreporting incentives. We identify three distinct types: (1) misreporting driven by top executives' wealth pursuits, (2) misreporting induced by capital market pressure, and (3) misreporting by subordinates due to inadequate management oversight. Our measure is developed by conducting a detailed analysis of the textual data from U.S. Securities and Exchange Commission Accounting and Auditing Enforcement Releases. We also provide rigorous empirical validations. Additionally, we create a composite misreporting severity score that incorporates the three misreporting incentives. Using our measure of misreporting incentives, we help reconcile previous mixed findings on the link between equity incentives and financial misreporting. Furthermore, in predicting market reactions to misreporting, our misreporting severity score outperforms a measurement that does not integrate misreporting incentives. Our measures can be practical tools for investigating a wide range of research questions related to the causes and consequences of financial misreporting.