This paper introduces a cross-country law and finance analysis of the misreporting behavior in the hedge fund industry in terms of smoothing returns so that a fund consistently generates positive returns. We find strong evidence that international differences in hedge fund regulation are...

Hedge funds commonly misreport returns by overstating their reported performance. We study the conditions that affect hedge fund managers' propensity to misreport and the effects of misreporting on performance measurement and investment decisions. First, misreporting is most prevalent in large...