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Risk, Return, and Moral Hazard, Journal of Accounting Research

Abstract

The article presents the results of a study that focused on a principal-agent contracting problem in which a manager privately chooses among projects with differing risk-return frontiers and in which the manager's effort choice alters the risk-return frontier of whatever project he selects. The study found that a manager's optimal report about his chosen project's mean is always downward biased and that the extent of this bias increases with the variance of the project's output, the manager's risk-aversion, and the "bonus" portion of the manager's compensation.

Type

Article

Author(s)

Ronald A. Dye

Date Published

1999

Citations

Dye, A. Ronald. 1999. Risk, Return, and Moral Hazard. Journal of Accounting Research. 37(1): 27-55.

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