Executive Compensation and Corporate Fraud

Shane A. Johnson, Harley E. Ryan, Yisong S. Tian
2003 Social Science Research Network  
We examine the relation between executive compensation and corporate fraud. Executives at fraud firms have significantly larger equity-based compensation and greater financial incentives to commit fraud than do executives at industry-and size-matched control firms. Executives at fraud firms also earn significantly more total compensation by exercising significantly larger fractions of their vested options than the control executives during the fraud years. Operating and stock performance
more » ... performance measures suggest executives who commit corporate fraud attempt to offset declines in performance that would otherwise occur. Our results imply that optimal governance measures depend on the strength of executives' financial incentives.
doi:10.2139/ssrn.395960 fatcat:4lh34tz5mvathc6vumkbcckix4