Tournament incentives and corporate fraud

Hass, Lars Helge and Müller, Maximilian and Vergauwe, Skralan (2015) Tournament incentives and corporate fraud. Journal of Corporate Finance, 34. pp. 251-267. ISSN 0929-1199

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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.

Item Type:
Journal Article
Journal or Publication Title:
Journal of Corporate Finance
Additional Information:
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
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/1400/1408
Subjects:
ID Code:
75234
Deposited By:
Deposited On:
13 Aug 2015 10:34
Refereed?:
Yes
Published?:
Published
Last Modified:
01 Oct 2020 01:10