Unethical Culture, Suspect CEOS and Corporate Misbehavior

67 Pages Posted: 1 Aug 2013 Last revised: 12 Aug 2013

See all articles by Lee Biggerstaff

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: August 2013

Abstract

We show that firms with CEOs who personally benefitted from options backdating were more likely to engage in other forms of corporate misbehavior, suggestive of an unethical corporate culture. These firms were more likely to overstate firm profitability and to engage in less profitable acquisition strategies. The increased level of corporate misbehaviors is concentrated in firms with suspect CEOs who were outside hires, consistent with adverse selection in the market for chief executives. Difference-in-differences tests confirm that the propensity to engage in these activities is significantly increased following the arrival of an outside-hire 'suspect' CEO, suggesting that causation flows from the top executives to the firm. Finally, while these suspect CEOs appear to have avoided market discipline when the market was optimistic, they were more likely to lose their jobs and their firms were more likely to experience dramatic declines in value during the ensuing market correction.

Suggested Citation

Biggerstaff, Lee and Cicero, David C. and Puckett, Andy, Unethical Culture, Suspect CEOS and Corporate Misbehavior (August 2013). NBER Working Paper No. w19261. Available at SSRN: https://ssrn.com/abstract=2304688

Lee Biggerstaff (Contact Author)

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

University of Tennessee, Knoxville ( email )

437 Stokely Managment Center
Knoxville, TN 37996
United States

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