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

Fifth Singapore International Conference on Finance 2011

53 Pages Posted: 1 Feb 2011 Last revised: 14 May 2012

Michael F. Ferguson

University of Cincinnati - Department of Finance - Real Estate

Buhui Qiu

University of Sydney Business School; Financial Research Network (FIRN)

Weihong Song

University of Cincinnati - Department of Finance

Date Written: May 2012

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.

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

JEL Classification: G38, J33

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: https://ssrn.com/abstract=1752423 or http://dx.doi.org/10.2139/ssrn.1752423

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)

University of Sydney Business School ( email )

Room 513, The Codrington Building
The University of Sydney
Sydney, NSW 2006
Australia
+61 2 9036 6435 (Phone)
+61 2 9351 6461 (Fax)

HOME PAGE: http://sydney.edu.au/business/staff/buhuiq

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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

Paper statistics

Downloads
162
Rank
151,042
Abstract Views
1,009