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Rudy Santore and Martin Tackie
 
''Stock option contract design and managerial fraud''
( 2013, Vol. 33 No.2 )
 
 
Stock option contracts provide managers with dual incentives, motivating both effort and fraud. We show that although there exists an infinity of stock option contracts that induce a given level of effort, no contract behaviorally dominates another in the sense that it induces relatively greater effort and relatively less fraud. We also characterize the schedule of implementable effort-fraud pairs.
 
 
Keywords: Corporate governance, stock options, incentives, contract design, fraud
JEL: G3 - Corporate Finance and Governance: General
L2 - Firm Objectives, Organization, and Behavior: General
 
Manuscript Received : Feb 25 2013 Manuscript Accepted : May 24 2013

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