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Does Financial Misconduct Affect the Future Compensation of Alumni Managers?

45 Pages Posted: 15 Nov 2017  

Boris Groysberg

Harvard Business School

Eric Lin

United States Military Academy

George Serafeim

Harvard University - Harvard Business School

Date Written: November 12, 2017

Abstract

We explore how an organization’s financial misconduct may affect pay for former employees not implicated in wrongdoing. Drawing on stigma theory we hypothesize that although such alumni did not participate in the financial misconduct and they had left the organization years before the misconduct, they experience a compensation penalty. Our results support this prediction. The stigma effect increases in relation to the job function proximity to the misconduct, recency of the misconduct, and an employee’s seniority. Collectively, our results suggest that the stigma of financial misconduct could reach alumni employees and need not be confined to executives and directors that oversaw the organization during the misconduct.

Keywords: financial misconduct, restatements, stigma, compensation, human capital

JEL Classification: M12, M40, M41, M51, M52

Suggested Citation

Groysberg, Boris and Lin, Eric and Serafeim, George, Does Financial Misconduct Affect the Future Compensation of Alumni Managers? (November 12, 2017). Harvard Business School Working Paper; Harvard Business School Accounting & Management Unit Working Paper. Available at SSRN: https://ssrn.com/abstract=3069937

Boris Groysberg

Harvard Business School ( email )

Soldiers Field
Boston, MA 02163
United States
617-496-2784 (Phone)
617-496-5271 (Fax)

Eric Lin

United States Military Academy ( email )

600 Thayer Rd
West Point, NY 10996
United States
8459385001 (Phone)

George Serafeim (Contact Author)

Harvard University - Harvard Business School ( email )

381 Morgan Hall
Boston, MA 02163
United States

HOME PAGE: http://drfd.hbs.edu/fit/public/facultyInfo.do?facInfo=ovr&facId=15705

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