CEO Wrongdoing: A Review of Pressure, Opportunity, and Rationalization

Abstract

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.

State ownership and securities fraud: A political governance perspective

“…What drives firms to engage in corporate misconduct has been a key topic in corporate governance research (Connelly, Shi, & Zyung, 2017;Schnatterly et al, 2018;Zorn et al, 2017). A key trigger of misconduct is the pressure faced by managers.…”

“…Therefore, investors are highly attentive to securities fraud. In addition, investigating what affects corporate misconduct (including securities fraud) is an important topic in governance research because effective governance is partly designed to prevent corporate misconduct (Mohliver, 2019;Neville, Byron, Post, & Ward, 2019;Schnatterly, Gangloff, & Tuschke, 2018;Zorn, Shropshire, Martin, Combs, & Ketchen, 2017).…”

Drilled to obey? Ex‐military CEOs and financial misconduct

“…Consequently, regulators, auditors, and researchers in different areas have started to investigate determinants of fraudulent financial reporting and backdating as well as mechanisms to prevent such misconduct. Accordingly, this topic has also sparked interest among academic scholars in management (for an overview see Greve, Palmer, & Pozner, or Schnatterly, Gangloff, & Tuschke, ). While prior work has mainly focused on corporate governance mechanisms to explain the occurrence of financial misconduct (Harris & Bromiley, ; O'Connor, Priem, Coombs, & Gilley, ; Zhang, Bartol, Smith, Pfarrer, & Khanin, ), the character of CEOs has received much less attention.…”

Research Topics in Accounting Fraud in the 21st Century: A State of the Art

“…Since the literature in this field is voluminous, we went through a painstaking selection process about the specific articles and themes, which finally lead us to selecting 156 articles. This methodology has also been used by several other authors who have also undertaken literature reviews for their research (Carcello, Hermanson, and Ye, 2011 [76]; Lee and Xiao, 2018 [77]; Schnatterly, Gangloff, and Tuschke, 2018 [78]).…”

“…Finally, regulators and auditors should remain alert to periods of economic boom, since, in this case, the probability that a company will commit fraud is greater. This is because the mechanisms of internal surveillance of companies are relaxed [78,141]. Table 3 offers a summary of the main contributions found in the articles reviewed with the topic "Company Organization".…”