Is there a Dark Side to Incentive Compensation?

Denis, David J.; Hanouna, Paul; Sarin, Atulya

doi:10.2139/ssrn.695583

Cited by 82 publications

(87 citation statements)

References 30 publications

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“…Meanwhile, the institutionalization of stock options may have other unintended effects. For example, the size of stock options has a very strong influence on the prevalence of earnings restatements (Efendi, Srivastava, & Swanson, 2004;Denis, Hanouna & Sarin, 2006).…”

Section: Executive Compensation Debates and Informal Institutionsmentioning

confidence: 99%

Corporate governance and national institutions: A review and emerging research agenda

2012

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Section: Executive Compensation Debates and Informal Institutionsmentioning

confidence: 99%

Corporate governance and national institutions: A review and emerging research agenda

2012

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“…For instance, board independence, the existence of an audit committee, and the presence of accounting and banking professionals on the committee have been found to decrease the incidence of fraudulent activities (see Beasley, 1996;Dechow et al, 1996;Uzun et al, 2004). Denis et al (2006) show that option intensity in CEO remuneration encourages risk taking and induces fraud, while Erickson et al (2006) show that the exercise of executive options and sales of executive stocks are not significantly higher for fraudulent firms. External governance mechanisms such as investors, employees analysts, auditors, media, and regulators are relatively less examined in the literature.…”

Section: Introductionmentioning

confidence: 99%

Executive integrity, audit opinion, and fraud in Chinese listed firms

Chen

Cumming

Hou

et al. 2013

Emerging Markets Review

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We examine the influence of auditors on corporate fraud in China. We find lower executive integrity firms are associated with higher propensity of regulatory enforcement actions against corporate fraud in the subsequent year. We then show that this effect is moderated by the issuance of modified audit opinion report by the auditors. This finding implies that auditors can serve an early warning role to discourage low integrity executives from engaging in corporate fraud. Our results have policy implications for further strengthening auditor independence in emerging countries like China.JEL classification: G15; G30; K22; M41

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“…Bergstresser and Philippon (2006) show that CEOs are more likely to manipulate reported earnings when granted high equity incentives. Denis et al (2006) Much of the earlier literature focused on CEOs' equity incentives. But several recent papers have analyzed the equity incentives granted to CFOs, and how they impact the likelihood of fraud.…”

Section: Previous Literature and Hypotheses Developmentmentioning

confidence: 99%

Equity Incentives and Corporate Fraud in China

2015

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This paper explores how managers' and supervisors' equity incentives impact the likelihood of committing corporate fraud in Chinese-listed firms. Previous research has shown that corporate fraud in China is a widespread phenomenon and has severe consequences for affected firms and executives. However, our understanding of the reasons fraud is committed in a Chinese setting have been very limited thus far. This is an increasingly important topic, because corporate governance is rapidly changing in China, and it is unclear whether adopting the executive compensation practices of the West is appropriate for Chinese firms. We show that managers' equity incentives increase their propensity to commit corporate fraud. We also find that this effect is more pronounced for state-owned firms. However, we find a negative but not significant relationship between the equity incentives of the supervisory board and the incidence of fraud.

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Is there a Dark Side to Incentive Compensation?

Cited by 82 publications

References 30 publications

Corporate governance and national institutions: A review and emerging research agenda

Corporate governance and national institutions: A review and emerging research agenda

Executive integrity, audit opinion, and fraud in Chinese listed firms

Equity Incentives and Corporate Fraud in China

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