Tournament incentives and corporate fraud

Hass, Lars Helge and Müller, Maximilian A. and Vergauwe, Skrålan (2015) Tournament incentives and corporate fraud. Journal of Corporate Finance, 34. pp. 251-267. ISSN 0929-1199 (https://doi.org/10.1016/j.jcorpfin.2015.07.008)

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Abstract

This paper identifies a new incentive for managers to engage in corporate fraud stemming from the relative performance evaluation feature of CEO promotion tournaments. We document higher propensities to engage in fraud for firms with strong tournament incentives (as proxied for by the CEO pay gap). We posit that the relative performance evaluation feature of CEO promotion tournaments creates incentives to manipulate performance, while the option-like character can motivate managers to engage in risky activities. We thereby extend previous corporate fraud literature that focuses mainly on equity-based incentives and reports mixed findings. Our results are robust to using different fraud samples, and controlling for other known determinants of fraud as well as manager skills.

ORCID iDs

Hass, Lars Helge ORCID logoORCID: https://orcid.org/0000-0001-8338-6671, Müller, Maximilian A. and Vergauwe, Skrålan;
  • Item type:Article
    ID code:73203
    Dates:
    Date
    Event
    31 October 2015
    Published
    18 July 2015
    Published Online
    13 July 2015
    Accepted
    Notes:This is the author's version of a work that was accepted for publication in Journal of Corporate Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Corporate Finance, 34, 2015 DOI: 10.1016/j.jcorpfin.2015.07.008
    Subjects:Social Sciences > Public Finance
    Department:Strathclyde Business School > Accounting and Finance
    Depositing user: Pure Administrator
    Date deposited:14 Jul 2020 14:39
    Last modified:04 Nov 2024 01:47
    URI:https://strathprints.strath.ac.uk/id/eprint/73203
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