We propose a parsimonious stochastic model of reported earnings that links misreporting to performance shocks. Our main analytical prediction is that misreporting leads to a negative second-order autocorrelation in the residuals from a regression of current earnings on lagged earnings. We also...

Relative performance evaluation (“RPE”) is a useful tool for shielding risk averse agents from systematic uncertainty. However, RPE can also destroy firm value by encouraging executives to implement excessively aggressive product market strategies to improve their relative standing through...

Many firms use relative stock performance to evaluate and incentivize their CEOs. We provide evidence that these firms routinely disclose information that harms peers’ stock prices. Consistent with deliberate sabotage, peer-harming disclosures appear to be aimed at the peers whose stock price...

We investigate the determinants of hedge fund internal controls and their association with the fees that funds charge investors. Hedge funds are subject to minimal regulation. Hence, hedge fund managers voluntarily implement internal controls, and managers and investors freely contract on fees....