Financial restatements are costly, but frequent, events and many firms restate several times. This paper asks why rational managers engage in misreporting, in spite of the costly consequences. We present a simple extension to the Fischer and Verrecchia (2000) model, which provides testable...

Prior literature suggests that the zero-earnings discontinuity is caused by earnings management. This makes sense if investors are naíve. We test for the possibility of investor naíveté and find that they are aware of firms performing earnings management around zero reported earnings and that...

I consider the optimal contract for an overconfident manager in a principal-agent model with moral hazard where the contract is written on the earnings of the firm. Overconfidence causes the manager to overestimate his ability to affect the outcome of the firm. Overconfidence first reduces cost...

I model a signaling game of financial misreporting in a market where traders randomly sample parts of the manager's report and then extrapolate the value of the firm based on this. The manager's report is a distribution of signals whose mean can be biased to be above the profitability of the...