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Full-Text Articles in Securities Law
Selection Neglect In Mutual Fund Advertisements, Jonathan Koehler, Molly Mercer
Selection Neglect In Mutual Fund Advertisements, Jonathan Koehler, Molly Mercer
Faculty Working Papers
Mutual fund companies selectively advertise their better-performing funds. However, investors respond to advertised performance data as if those data were unselected (i.e., representative of the population). We identify the failure to discount selected or potentially selected data as selection neglect. We examine these phenomena in an archival study (Study 1) and two controlled experiments (Studies 2 and 3). Study 1 identifies selection bias in mutual fund advertising by showing that the median performance rank for advertised funds is between the 79th and 100th percentile. Study 2 finds that both novice investors and financial professionals fall victim to selection neglect in …
Gatekeeper Incentive Compensation, Sharon Hannes
Gatekeeper Incentive Compensation, Sharon Hannes
Faculty Working Papers
A massive wave of corporate fraud at the beginning of the twenty first century exposed the failure of corporate gatekeepers. The Sarbanes-Oxley legislation accordingly targeted gatekeepers, primarily auditors, by imposing strict regulation and enhanced independence guidelines. This legislative remedy is of disputable benefit while its costs have been huge. This paper maintains that a certain type of auditor incentive compensation could work better than regulation. Under such an alternative scheme, auditors would defer a portion of the payment they receive from the client firm, which would be used to purchase shares in the client after their tenure as auditor has …