Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Faculty & Research
  • Faculty
  • Research
  • Featured Topics
  • Academic Units
  • …→
  • Harvard Business School→
  • Faculty & Research→
Publications
Publications
  • July 2015
  • Article
  • Journal of Financial Economics

Executives' 'Off-the-Job' Behaviors and Financial Reporting Risk

By: Robert Davidson, Aiyesha Dey and Abbie Smith
  • Format:Print
ShareBar

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 chief executive officers (CEOs) and chief financial officers (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 and increasing probabilities of other insiders perpetrating fraud and unintentional material reporting errors during their tenure. Further, cultural changes associated with an increase in fraud risk are more likely during unfrugal (vs. frugal) CEOs' reigns, 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.

Keywords

Management Teams; Behavior; Personal Characteristics; Crime and Corruption; Governance Compliance; Financial Reporting; Organizational Culture

Citation

Davidson, Robert, Aiyesha Dey, and Abbie Smith. "Executives' 'Off-the-Job' Behaviors and Financial Reporting Risk." Journal of Financial Economics 117, no. 1 (July 2015): 5–28.
  • Find it at Harvard
  • Read Now

About The Author

Aiyesha Dey

Accounting and Management
→More Publications

More from the Authors

    • Harvard Business Review

    When Hiring CEOs, Focus on Character

    By: Aiyesha Dey
    • March 2022
    • Faculty Research

    Scott Tucker (A) and (B)

    By: Aiyesha Dey
    • March 2022
    • Faculty Research

    Corporate Governance: A Three Pillar Framework

    By: Aiyesha Dey
More from the Authors
  • When Hiring CEOs, Focus on Character By: Aiyesha Dey
  • Scott Tucker (A) and (B) By: Aiyesha Dey
  • Corporate Governance: A Three Pillar Framework By: Aiyesha Dey
ǁ
Campus Map
Harvard Business School
Soldiers Field
Boston, MA 02163
→Map & Directions
→More Contact Information
  • Make a Gift
  • Site Map
  • Jobs
  • Harvard University
  • Trademarks
  • Policies
  • Accessibility
  • Digital Accessibility
Copyright © President & Fellows of Harvard College