Abstract

http://ssrn.com/abstract=2096226
 
 

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Executives’ 'Off-the-Job' Behavior, Corporate Culture, and Financial Reporting Risk


Robert H. Davidson


Georgetown University - McDonough School of Business

Aiyesha Dey


University of Minnesota - Carlson School of Management

Abbie J. Smith


University of Chicago - Booth School of Business

February 27, 2013

Chicago Booth Research Paper No. 12-24
Fama-Miller Working Paper

Abstract:     
We examine how executives’ behavior outside the workplace, as measured by their ownership of luxury goods (low “frugality”) and prior legal infractions, is related to financial reporting risk. We predict and find that CEOs and CFOs with a legal record are more likely to perpetrate fraud. In contrast, we do not find a relation between executives’ frugality and the propensity to perpetrate fraud. However, as predicted, we find that unfrugal CEOs oversee a relatively loose control environment characterized by relatively high and increasing probabilities of other insiders perpetrating fraud and unintentional material reporting errors during their tenure. Further, cultural changes associated with an increase in fraud risk are more likely during unfrugal (vs. frugal) CEOs’ reign, including the appointment of an unfrugal CFO, an increase in executives’ equity-based incentives to misreport, and a decline in measures of board monitoring intensity.

Number of Pages in PDF File: 61

Keywords: Executive frugality, legal infractions, financial reporting risk, corporate culture.

JEL Classification: G30, G34, G38

working papers series


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Date posted: June 30, 2012 ; Last revised: March 3, 2014

Suggested Citation

Davidson, Robert H. and Dey, Aiyesha and Smith, Abbie J., Executives’ 'Off-the-Job' Behavior, Corporate Culture, and Financial Reporting Risk (February 27, 2013). Chicago Booth Research Paper No. 12-24; Fama-Miller Working Paper . Available at SSRN: http://ssrn.com/abstract=2096226 or http://dx.doi.org/10.2139/ssrn.2096226

Contact Information

Robert H. Davidson
Georgetown University - McDonough School of Business ( email )
3700 O Street, NW
Washington, DC 20057
United States
Aiyesha Dey
University of Minnesota - Carlson School of Management ( email )
321 Nineteenth Avenue South
Minneapolis, MN 55455
United States
6126268626 (Phone)
Abbie J. Smith (Contact Author)
University of Chicago - Booth School of Business ( email )
1101 East 58th Street
Graduate School of Business
Chicago, IL 60637-1561
United States
773-702-7295 (Phone)
773-702-0458 (Fax)
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