66 Pages Posted: 27 Jun 2013 Last revised: 8 Nov 2014
Date Written: November 1, 2014
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: 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