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Earnings fraud: board control vs CEO control and corporate performance – 1992–2004

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  • Don Warren
  • Mary Zey
  • Tanya Granston
  • Joseph Roy

Abstract

The turn of the millennium is associated with increased corporate fraud, largely attributed to the failure of corporate governance. The compensation committee is expected to minimize fraud by rewarding only appropriate CEO behavior. A causal modeling approach, the Directed Acyclic Graph, was used to estimate the structure of corporate fraud. Corporate fraud was measured as illegal earnings statement(s), not all restatements but only those found illegal. A major finding is that the CEO's stock-option compensation motivates the CEO to commit corporate earnings fraud, while cash salaries and bonuses are only indirectly related to earnings fraud through those stock options. Copyright (C) 2010 John Wiley & Sons, Ltd.

Suggested Citation

  • Don Warren & Mary Zey & Tanya Granston & Joseph Roy, 2011. "Earnings fraud: board control vs CEO control and corporate performance – 1992–2004," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 32(1), pages 17-34, January.
    • Handle: RePEc:wly:mgtdec:v:32:y:2011:i:1:p:17-34
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    File URL: http://hdl.handle.net/10.1002/mde.1515
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    Cited by:

    1. Clement Olalekan Olaniyi & Ademola Obafemi Young & Xuan Vinh Vo & Mamdouh Abdulaziz Saleh Al‐Faryan, 2022. "Do institutional framework and its threshold matter in the sensitivity of CEO pay to firm performance? Fresh insights from an emerging market economy," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3386-3403, December.

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