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http://ssrn.com/abstract=1752423
 
 

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Does Equity-Based Compensation Really Have a 'Dark Side'? The Influence of Regulatory Discretion


Michael F. Ferguson


University of Cincinnati - Department of Finance - Real Estate

Buhui Qiu


Erasmus University - Rotterdam School of Management

Weihong Song


University of Cincinnati - Department of Finance

May 2012

Fifth Singapore International Conference on Finance 2011

Abstract:     
Using a recent sample of firms subject to SEC litigations for fraud and employing a detection-controlled estimation technique, we find that equity-based executive compensation (EBC) is positively related to both the probability of fraud commission and the probability of being prosecuted by the SEC. Moreover, EBC usage significantly decreased post Sarbanes-Oxley (SOX), but only in high-growth industries. Finally, post SOX, fraud commission dramatically declined by 60-70%, and this appears to be driven by the increased fraud penalties in SOX. These empirical results highlight the influence of potential regulatory discretion on fraud commission, fraud detection, and the usage of EBC.

Number of Pages in PDF File: 53

Keywords: Equity-Based Compensation, Regulatory Discretion, Fraud, Sarbanes-Oxley

JEL Classification: G38, J33

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Date posted: February 1, 2011 ; Last revised: May 14, 2012

Suggested Citation

Ferguson, Michael F. and Qiu, Buhui and Song, Weihong, Does Equity-Based Compensation Really Have a 'Dark Side'? The Influence of Regulatory Discretion (May 2012). Fifth Singapore International Conference on Finance 2011 . Available at SSRN: http://ssrn.com/abstract=1752423 or http://dx.doi.org/10.2139/ssrn.1752423

Contact Information

Michael F. Ferguson
University of Cincinnati - Department of Finance - Real Estate ( email )
College of Business Administration
Cincinnati, OH 45221
United States
513-556-7080 (Phone)
Buhui Qiu (Contact Author)
Erasmus University - Rotterdam School of Management ( email )
P.O. Box 1738
Room T09-39
Rotterdam, 3062 PA
Netherlands
31-10-408-1450 (Phone)
31-10-408-9017 (Fax)
HOME PAGE: http://www.rsm.nl/home/faculty/academic_departments/finance/faculty_and_staff/faculty/Qiu_Buhui
Weihong Song
University of Cincinnati - Department of Finance ( email )
College of Business
PO Box 210195
Cincinnati, OH 45221
United States
513-556-7041 (Phone)
513-556-0979 (Fax)
HOME PAGE: http://business.uc.edu/weihong-song
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