The Role of CEO Characteristics in Different Fraud Types

• In Event: Predicting and Explaining White-Collar and Corporate Offending

Abstract

Although various types of accounting fraud and chief executive officer (CEO) participation in such fraud have long been documented worldwide, few attempts have been made to empirically study the relationship between individual CEO characteristics and fraud type. In this study, we define four types of fraud—accounting fraud, legal violations, data falsification, and others—and examine the role of CEO characteristics in these fraud types. We constructed panel data of 8,822 firms listed on the Tokyo Stock Exchange between 2015 and 2020. The panel regression results reveal that CEOs who have joined a firm within the last five years are associated with high levels of accounting fraud. Moreover, CEOs’ holding shares pose a high risk for all types of fraud, including accounting fraud, legal violations, and data falsification. Furthermore, our findings confirm the interaction effect between CEOs’ shares held and their age, which is associated with a low risk for legal violations and data falsification but is not associated with accounting fraud. Therefore, this study extends the upper echelon theory and the role theory by demonstrating how specific CEO characteristics influence different types of fraud. Moreover, firms can use our findings to improve CEO selection and prevent fraud.

Author

• Asuka Takaoka, George Washington University