Managerial Incentives, Fraud, and Monitoring管理激励，欺诈，与监测.docVIP

Managerial Incentives, Fraud, and Monitoring * April 2010 H. David Robison Department of Economics LaSalle University Rudy Santore Department of Economics University of Tennessee Key Words: Financial Fraud, Monitoring, Governance, Executive Compensation, Incentive Contracts, Agency Theory. Abstract In response to equity compensation contracts that encourage managers to commit fraud as well as provide productive effort, owners may choose to monitor the manager to limit the fraud. We examine the firm owners’ incentives to perform both ex ante monitoring, such as internal controls, and ex post monitoring, such as audits, in a model that includes the reputational damages caused when a fraud is discovered. We provide conditions under which the owner prefers either more or less monitoring, and examine the effect of additional monitoring on the optimal equity package and equilibrium level of fraud. * We thank John Conlon, Scott Gilpatric, and Bill Neilson for helpful comments on previous versions of the paper. 1. Introduction Dating from Berle and Means (1932), discussions of agency theory in modern corporations focus on how to induce managers to behave in ways consistent with shareholders’ goals rather than pursue their own interests. In general, the traditional solution to the agency problem is to give the top managers equity-based compensation to more closely align their interests with those of shareholders (Jensen and Meckling, 1976; and Fama, 1980). However, scandals at Enron, Worldcom, and other major U.S. corporations, have led investors, policy makers, and academics to rethink the traditional wisdom. It thus appears that the solution to one agency problem, equity compensation, may create a second agency problem. Goldman and Slezak (2006) and Andergassen (2008) both provide principal-agent models in which equity-based compensation, while inducing greater effort from managers, also provides incentives for managers to artificially or fraudulently