Graduation Year

2019

Date of Submission

4-2019

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics-Accounting

Reader 1

George Batta

Terms of Use & License Information

Terms of Use for work posted in Scholarship@Claremont.

Abstract

This study examines the predictive power of restricted stock and stock option compensation on the enforcement of an Accounting and Auditing Enforcement Release. Since executives have seen substantial increases in the amount of equity incentive awards, this may incentivize management to commit financial reporting misconduct to boost the value of these awards. The magnitude of the incentive to commit financial reporting misconduct is hypothesized to be more pronounced with stock option compensation when compared with restricted stock compensation. The analysis for the 1992-2012 time period shows that the amount of stock option compensation has a positive relationship with the probability of an AAER enforcement while no such relationship exists for restricted stock. When examining this predictive probability relationship during 1992-2002 and 2003-2012, the evidence is mixed. While the amount of stock option compensation displays a positive relationship with the predicted probability of an AAER enforcement, restricted stock has a positive relationship in 1992-2002 and a negative relationship in 2003-2012.

Available for download on Saturday, May 02, 2020

This thesis is restricted to the Claremont Colleges current faculty, students, and staff.

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