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Suspect CEOs, Unethical Culture, and Corporate Misbehavior

66 Pages Posted: 27 Jun 2013 Last revised: 8 Nov 2014

Lee Biggerstaff

Miami University of Ohio - Department of Finance

David C. Cicero

Harbert College of Business, Auburn University

Andy Puckett

University of Tennessee, Knoxville

Date Written: November 1, 2014

Abstract

We show that firms with CEOs who personally benefit from options backdating are more likely to engage in other corporate misbehaviors, suggestive of an unethical corporate culture. These firms are more likely to commit financial fraud to overstate earnings. They acquire more private companies, which could perpetuate their frauds, and their acquisitions are met with lower market responses. These misbehaviors are concentrated in firms with externally-hired suspect CEOs, consistent with outside CEOs having greater discretion to shape firm culture. The costs of these misbehaviors are reflected in larger stock price declines during a market correction and increased CEO replacement.

Keywords: Corporate Culture, Ethics, Fraud, CEO, Option Backdating

JEL Classification: G30, G32, G39

Suggested Citation

Biggerstaff, Lee and Cicero, David C. and Puckett, Andy, Suspect CEOs, Unethical Culture, and Corporate Misbehavior (November 1, 2014). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2285785 or http://dx.doi.org/10.2139/ssrn.2285785

Lee Biggerstaff

Miami University of Ohio - Department of Finance ( email )

Oxford, OH 45056
United States

David C. Cicero

Harbert College of Business, Auburn University ( email )

415 Magnolia Ave.
Auburn, AL 36849
United States

Andy Puckett (Contact Author)

University of Tennessee, Knoxville ( email )

437 Stokely Managment Center
Knoxville, TN 37996
United States

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