Tournament incentives and corporate fraud

Lars Helge Haß, Maximilian A. Müller and Skrålan Vergauwe

Journal of Corporate Finance, 2015, vol. 34, issue C, 251-267

Abstract: This paper identifies a new incentive for managers to engage in corporate fraud stemming from the relative performance evaluation feature of CEO promotion tournaments. We document higher propensities to engage in fraud for firms with strong tournament incentives (as proxied for by the CEO pay gap). We posit that the relative performance evaluation feature of CEO promotion tournaments creates incentives to manipulate performance, while the option-like character can motivate managers to engage in risky activities. We thereby extend previous corporate fraud literature that focuses mainly on equity-based incentives and reports mixed findings. Our results are robust to using different fraud samples, and controlling for other known determinants of fraud as well as manager skills.

Keywords: Corporate fraud; Tournament incentives; CEO pay gap (search for similar items in EconPapers)
JEL-codes: G30 J33 M53 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (63)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:34:y:2015:i:c:p:251-267

DOI: 10.1016/j.jcorpfin.2015.07.008

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