Hand in the Cookie Jar: An Experimental Investigation of Equity-based Compensation and Managerial Fraud

David Bruner, Michael McKee and Rudy Santore

No 08-05, Working Papers from Department of Economics, Appalachian State University

Abstract: The use of equity-based compensation is an increasingly popular means by which to align the incentives of top management with that of the shareholders. However, recent theoretical and empirical research suggests that the use of equity-based compensation has the unintended consequence of creating the incentive to commit managerial fraud of the type being reported in the press. This paper reports experimental evidence showing that the amount of fraud committed by subjects is positively correlated with the level of equity, as is the level of effort. As well, the amount of fraud that is committed is negatively correlated with the probability of detection and subjects’ risk aversion. The experimental design permits the identification of causal relations in the directions just noted. Key Words:

JEL-codes: C91 G34 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-cfn and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Journal Article: Hand in the Cookie Jar: An Experimental Investigation of Equity‐Based Compensation and Managerial Fraud (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:apl:wpaper:08-05

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