Executives' "Off-The-Job" Behavior, Corporate Culture, and Financial Reporting Risk

Robert Davidson, Aiyesha Dey and Abbie J. Smith

No 18001, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We examine how executives' behavior outside the workplace, as measured by their ownership of luxury goods (low "frugality") and prior legal infractions, is related to financial reporting risk. We predict and find that CEOs and CFOs with a legal record are more likely to perpetrate fraud. In contrast, we do not find a relation between executives' frugality and the propensity to perpetrate fraud. However, as predicted, we find that unfrugal CEOs oversee a relatively loose control environment characterized by relatively high probabilities of other insiders perpetrating fraud and unintentional material reporting errors. Further, cultural changes associated with an increase in fraud risk are more likely during unfrugal (vs. frugal) CEOs' reign, including the appointment of an unfrugal CFO, an increase in executives' equity-based incentives to misreport, and a decline in measures of board monitoring intensity.

JEL-codes: G30 G34 G38 (search for similar items in EconPapers)
Date: 2012-04
New Economics Papers: this item is included in nep-bec, nep-cfn and nep-iue
Note: CF
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Citations: View citations in EconPapers (1)

Published as Executives' "Off-The-Job" Behavior, Corporate Culture, and Financial Reporting Risk , Robert Davidson, Aiyesha Dey, Abbie Smith. in Causes and Consequences of Corporate Culture , Zingales and Poterba. 2015
Published as Robert Davidson & Aiyesha Dey & Abbie Smith, 2015. "Executives' “off-the-job” behavior, corporate culture, and financial reporting risk," Journal of Financial Economics, vol 117(1), pages 5-28.

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