Abstract
Current explanations of corporate fraud, centered on external and internal governance mechanisms, have ignored the role of heterogeneity in innate psychological tendencies of CEOs. We integrate upper echelons theory with value activation and behavioral ethics theories from psychology to highlight the pivotal role of CEO values – broad, desirable goals (e.g., power, equality) that are people’s guiding principles to life – in predicting the likelihood of financial fraud. We focus on the most fundamental dimensions of personal values – CEO self-enhancement (selfishness) and self-transcendence (selflessness). Our results highlight how the interplay of CEO values and CEO stock options predicts corporate fraud. These results extend existing research on corporate fraud by bringing heterogeneity in CEO values to the forefront of understanding financial fraud.
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