Abstract

We draw on Hambrick and Masons’ (1984) upper echelon theory and the “Fraud Triangle” and investigate whether CEOs’ who served in the military are less likely to engage in corporate wrongdoings in the U.S. We hypothesize that former members of the military are comparatively more obedient to rules and regulations. We test our hypothesis in two distinctive settings. First, we use accounting and auditing enforcement releases (AAER) issued by the U.S. Securities and Exchange Commission (SEC) from 1992 till today that contain intentional and material substantial cases of financial fraud. Second, we make use of a data set of so called “lucky grants” for the years 1996 to 2005. The former data set includes fraudulent behavior that was detected only, while the latter allows us to test our hypothesis using the likelihood that executive stock options grants were backdated insuring the empirical results are not driven by any kind of (un)observed selection process that leads to fraudulent behavior of certain firms more to be likely to be detected. Our results indicate that firms headed by CEOs with experience in the military have a lower propensity to be involved in financial fraud and or to have engaged in option backdating.

There is no full paper. I only found this abstract.

Thanks