Wrongdoing, and specifically that which is committed by top executives, has attracted scholars for decades for a number of reasons. Among them, the consequences of wrongdoing are widespread for organizations and the people in and around them. Due to the vast array of consequences, there continues to be new questions and additional scholarly attempts to uncover why it occurs. In this review, we build upon previous efforts to synthesize the body of literature regarding the antecedents of CEO wrongdoing utilizing a framework that sheds light on the status of the literature and where unanswered questions remain. We apply the Fraud Triangle, a framework drawn from the accounting literature, to derive conclusions about what we know about the pressures faced by CEOs, the opportunities afforded to CEOs to commit wrongdoing, and contributing factors to a CEO's ability to rationalize misbehavior. We organize the literature on these conceptual antecedents of CEO wrongdoing around internal (e.g., compensation structure and organizational culture) and external (e.g., shareholder pressure and social aspirations) forces. In doing so, we integrate findings from a variety of disciplines (i.e., accounting, finance, and sociology) but remain focused on management scholarship since the last review of organizational wrongdoing to provide an updated state of the literature. This review offers a clear framework and a common language; it highlights gaps in the literature and specific directions for future research with the ultimate goal of understanding why CEOs engage in wrongdoing.

Research summary:Drawing on theory about signaling, sensemaking, and the romance of leadership, we extend inquiry on investors' perceptions of CEO succession following misconduct. Whereas past studies have treated misconduct monolithically, we examine failures of integrity and competence separately. Using a policy capturing methodology that isolates investors' decision making from potential confounds, we find that, following an integrity failure, investors perceive outside and interim successors positively but inside successors negatively. Following a competence failure, investors perceive outside successors positively but are ambivalent toward inside and interim successors. Our findings indicate that whether an act of misconduct was an integrity failure or a competence failure, and what type of successor the firm chooses, are important considerations when using CEO succession as a means to restore investor confidence.Managerial summary: Business headlines regularly feature episodes of organizational misconduct, such as product safety problems, environmental violations, employee mistreatment, and securities lawsuits, and their aftermath. In such scenarios, shareholders demand answers from the people at the top, even if those people were not directly responsible for the problem. As a result, companies often fire the CEO as a means to restore investor confidence. Does this work? It depends on the type of misconduct and who is the CEO's successor. Following a competence failure, investors welcome the appointment of an outsider, but they are indifferent to inside and interim successors. Following an integrity failure, shareholders greet outside and interim CEO successors favorably while frowning on the promotion of insiders.

Tournament theory is useful for describing behavior when reward structures are based on relative rank rather than absolute levels of output. Accordingly, management scholars have used tournament theory to describe a wide range of inter- and intraorganizational competitions, such as promotion contests, innovation contests, and competition among franchisees. While the use of tournament theory has gained considerable momentum in recent years, the ideas that underlie the theory have become blurred and potentially useful insights remain trapped within disciplines. We, therefore, provide a synthesis of the theory’s foundational concepts, review its use in the management literature, identify advancements from related disciplines that may be imported to management research, and delineate the steps likely to be critical to moving the theory forward. Our hope is this review will make tournament theory more accessible and salient to management researchers with a view toward developing more nuanced versions of the theory and applying it in a wider range of contexts.

If an organization’s management is caught in the act of misconduct, it may call for a changing of the guard. Surprisingly, though, there is little empirical evidence examining the presumed benefits of executive turnover in the aftermath of wrongdoing. In this study, we explore investor reactions to CEO turnover following financial misrepresentation. We theorize and find that firms can be successful at managing investor reactions to organizational misconduct by either scapegoating or signaling change, but middle-ground approaches that do not commit to one or the other are less successful. We test our ideas in a firm-level event study of market reactions to CEO successions following a material financial statement restatement. We discuss the results, which generally support our predictions, and their implications for development of the scapegoating and signaling literatures and research on both executive succession and restoring corrupt organizations.