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Is There a Link between Executive Equity Incentives and Accounting Fraud?

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  • MERLE ERICKSON
  • MICHELLE HANLON
  • EDWARD L. MAYDEW

Abstract

We compare executive equity incentives of firms accused of accounting fraud by the Securities and Exchange Commission (SEC) during the period 1996–2003 with two samples of firms not accused of fraud. We measure equity incentives in a variety of ways and employ a battery of empirical tests. We find no consistent evidence that executive equity incentives are associated with fraud. These results stand in contrast to assertions by policy makers that incentives from stock‐based compensation and the resulting equity holdings increase the likelihood of accounting fraud.

Suggested Citation

  • Merle Erickson & Michelle Hanlon & Edward L. Maydew, 2006. "Is There a Link between Executive Equity Incentives and Accounting Fraud?," Journal of Accounting Research, Wiley Blackwell, vol. 44(1), pages 113-143, March.
    • Handle: RePEc:bla:joares:v:44:y:2006:i:1:p:113-143
    DOI: 10.1111/j.1475-679X.2006.00194.x
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