Theses and Dissertations

Advisor

Cline, Brandon N.

Committee Member

Taboada, Alvaro G.

Committee Member

Boumosleh, Anwar

Committee Member

Blank, Douglas Brian

Committee Member

Campbell, Randall C.; Roskelley, Kenneth

Date of Degree

8-13-2024

Original embargo terms

Visible MSU Only 2 Years

Document Type

Dissertation - Campus Access Only

Major

Business Administration (Finance)

Degree Name

Doctor of Philosophy (Ph.D.)

College

College of Business

Department

Department of Finance and Economics

Abstract

I study how the decisions of corporate individuals, firm culture, corporate behavior, and the broader financial markets are interconnected. In the first chapter, I examine insider trade reporting violations by corporate insiders, such as executives, officers, and directors, who have access to nonpublic information. The Sarbanes-Oxley Act of 2002 (SOX) mandates prompt insider trade reporting within two business days to reduce information asymmetry. However, frequent violations of this deadline breach securities law and may indicate a broader culture of noncompliance. I investigate whether insiders’ adherence to or disregard for filing deadlines reflects the firm’s stance on unethical behavior and its fiduciary duty to shareholders. Using a dataset of 18,567 firm-year observations post-SOX, I find a significant positive association between insider filing violations and future corporate misconduct, especially in firms without a Chief Compliance Officer (CCO). This suggests that strong internal regulatory systems are crucial for promoting a culture of compliance. In the second chapter, I explore the link between incoming CEO incentives and real earnings management (REM), which involves purposeful deviations from normal business operations to meet specific earnings targets. New CEOs face significant scrutiny from shareholders, boards, and the market, which may pressure them to manage earnings. I find a negative association between CEO risk-taking incentives (vega) and REM and a positive association between CEO stock price sensitivity (delta) and REM when the firm is in financial distress. These findings suggest that CEO incentives are closely related to REM. In the third chapter, using hand-collected data, I explore the labor market response to executives’ off-the-job personal misconduct, such as sexual misadventure, substance abuse, violence, and dishonesty. I observe that executives with a record of indiscretion are 12% more likely to switch firms, 11% more likely to lose board seats, and 10% more likely to experience a lower rank the next year. Furthermore, they are 34.5% to 37.3% more likely to join firms with low integrity culture scores. This research highlights the career repercussions of personal indiscretions for executives.

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