Hand in the Cookie Jar: An Experimental Investigation of Equity-Based Compensation and Managerial Fraud
AbstractThe use of equity-based compensation is an increasingly popular means by which to align the incentives of top management with those of the shareholders. However, recent theoretical and empirical research indicates that the use of equity-based compensation has the unintended consequence of creating the incentive to commit managerial fraud of the type being reported in the press. This paper reports experimental evidence that shows that the amount of fraud committed by subjects is positively correlated with the level of equity, as is the level of effort. In addition, the amount of fraud that is committed is negatively correlated with the probability of detection and subjects' risk aversion. The experimental design permits the identification of causal relations in the directions just noted.
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Bibliographic InfoArticle provided by Southern Economic Association in its journal Southern Economic Journal.
Volume (Year): 75 (2008)
Issue (Month): 1 (July)
Other versions of this item:
- David Bruner & Michael McKee & Rudy Santore, 2008. "Hand in the Cookie Jar: An Experimental Investigation of Equity-based Compensation and Managerial Fraud," Working Papers, Department of Economics, Appalachian State University 08-05, Department of Economics, Appalachian State University.
- G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
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