| Drawing from management and strategy literature, I examine the extent to which managerial and strategic factors are associated with financial statement fraud. Based on a matched pair sample, using a logit regression model, I find that firms that have engaged in fraudulent accounting activities have younger CEOs who have more of their compensation based on stock options than their counterparts. While I expected to find that CEOs of firms involved in accounting fraud would be more likely to have MBA degrees, in fact I found that those CEOs are less likely to have an MBA. I also find that firms engaging in fraudulent accounting activities tend to pursue more risky acquisition strategies than firms not engaging in accounting fraud. My results show that the lack of external audit oversight is associated with financial statement fraud.; An analysis of the four years, leading up to and including the year the accounting fraud started shows that three years prior to the start of the accounting violation, there are few significant differences between the violator and the non-violator match firms along a series of financial, managerial, governance and strategy variables. In the next three years, culminating in the year when the violations began, significant differences develop between the violators and matches along the managerial, governance and strategy variables, while this trend does not appear along the financial variables.; These results advance our understanding of the role executives play in accounting fraud, and suggest that managerial, governance and strategic arrangements must be considered in order to provide safeguards against such fraud. |
