Executive Equity Compensation and Financial Statement Fraud

Robert H Davidson
Pamplin School of Business, Virginia Polytechnic Institute and State University

February 2017


I find the association between equity compensation and financial statement fraud is positive and significant for executives named as perpetrators of fraud by the SEC. The results hold in intra-firm analyses of over 1,500 executives at over 350 fraud firms comparing named and unnamed executives in the same firm and holding all environmental factors constant. The results hold in matched samples of fraud and non-fraud firms and in unmatched samples. The results hold when analyzing portfolio delta, vega, gamma, and their individual components. The results hold when analyzing all top 5 executives, CEOs alone, removing CEOs, and removing CFOs.

Keywords: Executive materialism; corporate social responsibility, accounting profitability.

JEL Classification Codes: G30; G34; G38; G39

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