Nikolaj Niebuhr Lambertsen

Manipulation and Obfuscation of Financial Reports

Published in the Journal of Business Finance and Accounting

Anecdotally, not all investors are able to read and understand the financial report. I consider a strategic reporting game where investors are bounded rational and only pay attention to randomly sampled parts of the financial report and then extrapolate the value of the firm based on this. The manager can both obfuscate and bias the financial report. Obfuscation works by disaggregating the report into any number of line items, modeled as non-negative signals, whose mean is constrained to be equal to the biased profitability of the firm. There can be synergies between biasing and obfuscation, causing financial statements to be both less transparent and more biased when investors are extrapolative.

Restatement costs and reporting bias - with Marie Herly

Published in the Journal of Business Finance and Accounting 

Financial restatements are costly, but frequent, events and many firms restate several times. We explore why rational managers engage in misreporting despite the costly consequences. To guide our analysis, we build a parsimonious model of reporting bias and the cost of restating. In our model, the observed cost of a restatement conveys information about the true cost of biasing financial statements, which the manager incorporates into the optimal choice of bias. A restatement hence offers managers an opportunity to learn about the true cost of reporting bias, which allows them to update their biasing strategy if the observed cost differs from the expected. We test the model's predictions by analyzing how firms' accruals quality changes after observing the costs attached to restating, which we measure as the market loss following a restatement scaled by the restatement's net income effect. We find that future accruals quality is increasing in the cost of restating and the change in the cost of restating. Consistent with our stylized model, our results indicate that rational managers use the insights from prior restatements to improve their future bias strategy.

On the Incentive Efficiency of Market- and Accounting-Based Compensation when Price Informativeness is Neglected

I examine how to optimally use market- and accounting-based compensation in a contract between an agent and a principal who misunderstand how prices are informative about the agent's effort choice. Neglect of price informativeness causes the agent to misunderstand how the market price reflects his choice of effort and misinterpret the risk of a given contract. This makes it costly to use the market price for providing incentives but makes it cheap to use the market price for insurance and allows the principal to exploit the agent. Neglect of price informativeness causes the principal to underestimate the cost of inducing effort, making her believe that it is cheap to use the market price for incentives.

Manipulative overconfidence and the cost of unbiased reporting

Revise and resubmit at Accounting and Business Research

I study earnings management in an agency setting where the agent is overconfident in his ability to manage earnings and the principal can make the agent communicate earnings truthfully. Without communication, overconfidence can increase earnings management, increase incentive pay, and decrease the value of the firm and possibly the agent's welfare. With communication, the principal can deter earnings management, and overconfidence increases the agent's total compensation at the cost of firm value. When the agent becomes significantly overconfident, communication may lose value, and this causes an upwards jump in earnings management.

Overconfidence, Moral Hazard, and Earnings Management

SSRN 

The empirical literature often theorizes that managerial overconfidence exacerbates earnings management because overconfidence sends the manager "down the slippery slope to misreporting". In a principal-agent model with moral hazard, I show that overconfidence only increases the manager's choice of earnings management if the owners contract with the manager to exploit his overconfidence. If the owners contract with the manager to increase incentives for productive effort, overconfidence decreases the manager's choice of earnings management. Whether or not overconfidence leads to earnings management is a conscious choice of the firm's owners

I (don't) care about your belief: Managerial Overoptimism and Discretionary Disclosure - with Matthias Lassak

SSRN 

We examine the effect of managerial overoptimism on discretionary disclosure choices. In efficient capital markets, overoptimism should matter for disclosure outcomes only if the disclosed information represents the manager's subjective expectation and the market is unaware of the precise bias of the manager. In these cases, firms run by overoptimistic managers are overvalued, providing novel implications for disclosure-based trading strategies and managerial hiring decisions of shareholders. Finally, the disclosure outcome depends crucially on the subjectivity of the disclosed information, the manager’s overoptimism, and overall market sentiment.

Assistant Professor, Aarhus University

2022- today

Ph.D in Economics and Business Economics, Aarhus University

2018-2022