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Does Financial Misconduct Affect the Future Compensation of Alumni Managers?
... First, we have a limited understanding of the broader spillover effects of fraud (Coates and Srinivasan [2014]). Regarding the labor market, prior literature finds fraud directly impacts the careers of fraudsters (Karpoff et al. [2008]) and their co-workers (Choi and Gipper 2021; Groysberg et al. [2020]), yet we have a limited understanding of how fraud impacts the labor force more broadly. Second, because frauds are historically followed by regulation that shifts nationwide demand for accounting services (Hail et al. [2018]), it is empirically challenging to observe the distinct effects of fraud in the labor market. ...
... On one hand, fraud may reduce student interest in joining the accounting profession because it diminishes its prestige (Belski and Pope [2006]) and associates it with stigmatized fraudulent behavior (Goffman [2009]). The literature on stigma by association suggests even random or remote connections to stigmatized behavior can have harmful social effects (e.g., Goffman [1956]; Groysberg et al. [2020]). ...
Financial statement fraud generates many negative effects, including reducing people's willingness to participate in the stock market. If it also stigmatizes accounting, it may similarly adversely affect the quantity and quality of workers willing to become accountants, thereby potentially creating negative effects for years to come. We examine the impact of fraud on the labor force entering the accounting profession, which is a key input into the production of accounting information (i.e., the output). Using data describing millions of college students across the U.S., we find incoming students are actually more likely to major in accounting when local frauds occur during their formative years. These students are also more likely to have attributes desired by the accounting profession (e.g., high academic aptitude) and are more likely to subsequently serve in public accounting and become CPAs. In the context of other fields (i.e., all college majors), we find that fraud similarly spurs interest in other business disciplines, but not in majors outside of business schools. Those attracted to other business disciplines, however, generally possess different traits. Specifically, students entering accounting are distinctively more likely to exhibit values espoused by the accounting profession, including a predisposition to public service and less commercial orientation. Thus, non‐pecuniary motives appear to uniquely drive accounting student enrollment following fraud. Collectively, our findings suggest that, while fraud is unmistakably bad, it appears to have the positive unintended consequence of attracting labor into business disciplines and, in accounting, increasing the prevalence of desirable traits among entrants.
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... We are not alone in suggesting that managers not involved in financial misconduct face career penalties. Groysberg et al. (2017) find that even alumni employees who were not present during the financial misconduct received lower future compensation after misconduct was revealed. And Choi and Gipper (2019) find that rank and file employees at fraud firms suffer long lasting stigma that affects future career consequences. ...
... Studies show that managerial turnover following a restatement does enhance financial reporting credibility (Chakravarthy et al. 2014;Wilson 2008;Chen et al. 2014). Second, other studies show that misreporting damaged the careers of employees not involved in the misreporting, such as alumni (Groysberg et al. 2017) and rank-andfile personnel (Choi and Gipper 2019). These results are consistent with experiments in social psychology documenting a stigma that could lead to penalties, even absent any culpability (Goldstein and Johnson 1997;Pryor et al. 2012;Hebl and Mannix 2003). ...
We examine whether revealing misreporting affects the careers of executives and independent directors. To isolate the effects of revealing misreporting from the underlying malfeasance, we analyze executives and directors who joined firms after stock option backdating ceased, but who were in place to determine how the firm would respond to the unfolding backdating crisis. Overall, these new executives and directors faced career penalties at firms that issued a backdating restatement relative to those at firms that remained silent despite strong evidence of backdating having occurred. We conduct a variety of tests to rule out alternative explanations, and conclude that new executives and directors face career penalties after firms reveal misreporting.
In his classic text, Goffman (1963 ) defined courtesy stigma as the negative impact that results from association with a person who is marked by a stigma. Family members of relatives with mental illness are frequently harmed by this kind of stigma. Using a social cognitive model of mental illness stigma, we review ways in which various family roles (e.g., parents, siblings, spouses) are impacted by family stigma. We distinguish between public stigma (the impact wrought by subsets of the general population that prejudge and discriminate against family members) and vicarious stigma (suffering the stigma experienced by relatives with mental illness). Results of our review suggest parents are blamed for causing their child's mental illness, siblings and spouses are blamed for not assuring that relatives with mental illness adhere to treatment plans, and children are fearful of being contaminated by the mental illness of their father or mother. The current body of literature suggests several important directions for future research including identification of stereotypes in addition to shame, blame, and contamination that harm family members; developing rigorous research methods that validate the link between stigmatizing attitudes and discriminatory behaviors; and testing programs that help to erase the various manifestations of family stigma.