Do Executives Behave Better When Dishonesty is More Salient?

58 Pages Posted: 17 Mar 2016 Last revised: 17 Jun 2016

See all articles by David C. Cicero

David C. Cicero

Harbert College of Business, Auburn University

Mi Shen

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development

Date Written: June 2016

Abstract

In behavioral experiments, individuals are less likely to cheat at a task when the saliency of dishonesty is increased [Mazar, Amir, and Ariely (2008), Gino, Ayal, and Ariely (2009)]. We test a similar hypothesis in a real world setting by treating news about high-profile political scandals as shocks to the salience of unethical/illegal behavior and its consequences. We find that local corporate insiders engage in fewer suspect behaviors in the year after a political scandal is revealed. Their stock sales are less profitable and they are less likely to sell stock ahead of large price declines, suggesting less illegal insider trading. These patterns vary predictably with the level of media attention to scandal-related events during the scandal years. Locally headquartered firms also appear to engage in less earnings management following the revelation of a political scandal. However, these changes in executives’ behaviors appear to be largely transitory and the evidence of suspect behaviors resumes in following years.

Keywords: insider trading, earnings management, salience of dishonesty, salience of consequences

JEL Classification: G3, G30, K42

Suggested Citation

Cicero, David C. and Shen, Mi, Do Executives Behave Better When Dishonesty is More Salient? (June 2016). Available at SSRN: https://ssrn.com/abstract=2748258 or http://dx.doi.org/10.2139/ssrn.2748258

David C. Cicero (Contact Author)

Harbert College of Business, Auburn University ( email )

415 Magnolia Ave.
Auburn, AL 36849
United States

Mi Shen

Central University of Finance and Economics (CUFE) - Chinese Academy of Finance and Development ( email )

39 South College Road
Beijing
China

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