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.

Ranking Performance Measurement Systems when People Disagree - With Morten Lund Poulsen

SSRN 

Evidence suggests that people have heterogeneous beliefs about performance measurement systems, leading to disagreement in organizations. Motivated by this, we consider the ranking of performance measurement systems in a principal-agent model in which the agent and principal have heterogeneous beliefs. The ranking of performance measurement systems depends on both the agent's beliefs about their informativeness and the disagreement of beliefs between the principal and the agent. Ranking criteria are sensitive to whether the principal wants to exploit the agent,  which is a question about ethics. Our model provides a new perspective on why performance measures should be designed in dialog with employees and how ethics influence performance measurement choices.

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.

Exploiting overconfidence: Optimal contracts with heterogeneous beliefs

SSRN  - Revise and Resubmit at Economic Theory

I study a principal-agent model with moral hazard and heterogeneous beliefs. With homogeneous beliefs, moral hazard increases the contract's sensitivity to the outcome to ensure that the agent does not take a lower action than the one chosen by the principal. With heterogeneous beliefs, side betting between the principal and the agent leads to actions for which moral hazard decreases the contract's sensitivity to the outcome to ensure that the agent does not take a higher action than the one chosen by the principal. I provide conditions on the primitives of the models for when this is the case and I also provide sufficient conditions for the optimal contract to be monotonically increasing and the first-order approach to be applicable.

Assistant Professor, Aarhus University

2022- 2024

Ph.D in Economics and Business Economics, Aarhus University

2018-2022