Abstract
This article examines whether internal governance in the form of managerial dissent between the CEO and subordinate executives reduces fraud likelihood. We model fraud as a rational decision in a cost–benefit framework and a collective activity by all executives. The model predicts a negative relation between dissent and fraud occurrence. We use three measures for higher dissent: a larger fraction of subordinates having joined the firm prior to the CEO, a lower CEO pay slice, and a smaller difference in pay performance sensitivity between the two; and find supporting evidence. We address endogeneity concerns by including firm-fixed effects, constructing a propensity score–matched sample, and conducting instrument variable analysis. We also find that fraud duration is negatively related to dissent.
| Original language | English |
|---|---|
| Pages (from-to) | 596-619 |
| Number of pages | 24 |
| Journal | Journal of Accounting, Auditing and Finance |
| Volume | 38 |
| Issue number | 3 |
| Early online date | 9 Feb 2021 |
| DOIs | |
| Publication status | Published - Jul 2023 |
Bibliographical note
Funding Information:The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: Prof. Jian Zhang acknowledges the financial support from the National Natural Science Foundation of China (grant no. 71802160), and the PRC Ministry of Education Youth Project for Humanities and Social Science Research (grant no. 18XJC630008).
Publisher Copyright:
© The Author(s) 2021.
Keywords
- corporate fraud
- internal corporate governance
- managerial dissent
ASJC Scopus subject areas
- Accounting
- Finance
- Economics, Econometrics and Finance (miscellaneous)