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An Analysis of SEC Clawback Provisions in terms of Loss-Aversion and Narcissism

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Executive compensation is broken into two parts: one fixed and one variable. The fixed component of executive compensation is the annual salary and the variable components are performance-based incentives. Clawback provisions of executive compensation are designed to require executives to

Executive compensation is broken into two parts: one fixed and one variable. The fixed component of executive compensation is the annual salary and the variable components are performance-based incentives. Clawback provisions of executive compensation are designed to require executives to return performance-based, variable compensation that was erroneously awarded in the year of a misstatement. This research shows the need for the use of a new clawback provision that combines aspects of the two currently in regulation. In our current federal regulation, there are two clawback provisions in play: Section 304 of Sarbanes-Oxley and section 954 of The Dodd\u2014Frank Wall Street Reform and Consumer Protection Act. This paper argues for the use of an optimal clawback provision that combines aspects of both the current SOX provision and the Dodd-Frank provision, by integrating the principles of loss aversion and narcissism. These two factors are important to consider when designing a clawback provision, as it is generally accepted that average individuals are loss averse and executives are becoming increasingly narcissistic. Therefore, when attempting to mitigate the risk of a leader keeping erroneously awarded executive compensation, the decision making factors of narcissism and loss aversion must be taken into account. Additionally, this paper predicts how compensation structures will shift post-implementation. Through a survey analyzing the level of both loss- aversion and narcissism in respondents, the research question justifies the principle that people are loss averse and that a subset of the population show narcissistic tendencies. Both loss aversion and narcissism drove the results to suggest there are benefits to both clawback provisions and that a new provision that combines elements of both is most beneficial in mitigating the risk of executives receiving erroneously awarded compensation. I concluded the most optimal clawback provision is mandatory for all public companies (Dodd-Frank), targets all executives (Dodd-Frank), and requires the recuperation of the entire bonus, not just that which was in excess of what should have been received (SOX).

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2018-12

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Motivation Crowding Theory and Its Limits

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This paper consists of a literature review, wherein four papers surrounding Motivation Crowding Theory (MCT) were read and analyzed. The paper then goes into an analysis of a survey I conducted. The survey consisted of three main questions with three

This paper consists of a literature review, wherein four papers surrounding Motivation Crowding Theory (MCT) were read and analyzed. The paper then goes into an analysis of a survey I conducted. The survey consisted of three main questions with three sub-questions for each, and all attempted to find a "limit" to MCT. However, results for the survey were ultimately inconclusive. The paper concludes with lessons learned in conducting research and surveys in particular, as well as a nod to the relevancy of MCT in business and personal applications.

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2020-05

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WPC 101: Ethics Curriculum

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At a time when the national and world community is viewing collegiate business programs as complicit in many recent business scandals rooted in ethical violations and breaches of trust, improving ethics education is a high priority. Review of current research

At a time when the national and world community is viewing collegiate business programs as complicit in many recent business scandals rooted in ethical violations and breaches of trust, improving ethics education is a high priority. Review of current research on techniques for effectively teaching ethics highlights the importance of incorporating conversational learning, decision models, and relevant, personalized case discussions into undergraduate ethics lessons. Focusing exclusively on ethics education in the first-year business seminar WPC 101, we evaluated the current ethics/academic integrity module and found it to be lacking many research-supported techniques. To develop an updated curriculum, we first used the EthicsGame Ethical Lens Inventory in a survey of 114 W. P. Carey students to explore whether a connection between students' majors and primary ethical lenses would demonstrate the effectiveness of designing different, tailored ethics curricula for students in each major. Regression analysis of the survey responses indicated that this research was inconclusive for every major except for Accountancy, which already has a specific (upper-division) ethics course. This initial research stage led to the creation of a universally applicable ethics curriculum based on the Baird Decision Model. Incorporating techniques from the literature review, the new WPC 101 Academic Honesty & Ethics curriculum includes a presentation on the Baird Decision Model, a small-group discussion of a relevant ethical dilemma, and a class role play. The curriculum additionally includes detailed Facilitator Guidelines for educators. The curriculum was piloted in WPC 101 classes during Spring 2016, and we present student and facilitator feedback as well as suggestions for further research and improvement. Use of this research-backed curriculum and further study into its impact on student decision making will allow W. P. Carey to continue advancing in pursuit of training students to be effective ethical leaders.

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2016-05

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The Unintended Consequences of Sarbanes-Oxley Act of 2002

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Given its impact on the accounting profession and public corporations, Sarbanes-Oxley Act of 2002(SOX) is a widely researched regulation among accounting scholars. Research typically focuses on the impact it has had on corporations, executives and auditors, however, there is limited

Given its impact on the accounting profession and public corporations, Sarbanes-Oxley Act of 2002(SOX) is a widely researched regulation among accounting scholars. Research typically focuses on the impact it has had on corporations, executives and auditors, however, there is limited research that illustrates the impact SOX may have on average Americans. There were several US criminal code sections that resulted from the passing of SOX. Statute 1519, which is often referred to as the "anti-shredding provision", penalizes anyone who "knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to" obstruct a current or foreseeable federal investigation. This statute, although intended to punish behavior similar to that which occurred in the early 2000s by corporations and auditors, has been used to charge people beyond its original intent. Several issues with the crafting of the statute cause its broad application and some litigation even reached the Supreme Court due to its vague wording. Not only is the statute being applied beyond the intent, there are other issues that legal scholars have critiqued it for. This statute is far from being the only law facing these issues as the same issues and critiques are found in the 14th amendment. Rewriting the statute seems to be the most effective way to address the concerns of judges, lawyers and defendants regarding the statute. In addition, Congress could have passed this statute outside of SOX to avoid being seen as overreaching if obstruction of justice related to documents was actually an issue outside of corporate fraud.

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2016-12

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Scandal: An Ethics Game on the Importance of Accurate GAAP and FASB Reporting for Public Corporations

Description

Financial statements are one of the most important, if not the most important, documents for investors. These statements are prepared quarterly and yearly by the company accounting department, and are then audited in detail by a large external accounting firm.

Financial statements are one of the most important, if not the most important, documents for investors. These statements are prepared quarterly and yearly by the company accounting department, and are then audited in detail by a large external accounting firm. Investors use these documents to determine the value of the company, and trust that the company was truthful in its statements, and the auditing firm correctly audited the company's financial statements for any mistakes in their books and balances. Mistakes on a company's financial statements can be costly. However, financial fraud on the statements can be outright disastrous. Penalties for accounting fraud can include individual lifetime prison sentences, as well as company fines for billions of dollars. As students in the accounting major, it is our responsibility to ensure that financial statements are accurate and truthful to protect ourselves, other stakeholders, and the companies we work for. This ethics game takes the stories of Enron, WorldCom, and Lehman Brothers and uses them to help students identify financial fraud and how it can be prevented, as well as the consequences behind unethical decisions in financial reporting. The Enron scandal involved CEO Kenneth Lay and his predecessor Jeffery Skilling hiding losses in their financial statements with the help of their auditing firm, Arthur Andersen. Enron collapsed in 2002, and Lay was sentenced to 45 years in prison with his conspirator Skilling sentenced to 24 years in prison. In the WorldCom scandal, CEO Bernard "Bernie" Ebbers booked line costs as capital expenses (overstating WorldCom's assets), and created fraudulent accounts to inflate revenue and WorldCom's profit. Ebbers was sentenced to 25 years in prison and lost his title as WorldCom's Chief Executive Officer. Lehman Brothers took advantage of a loophole in accounting procedure Repo 105, that let the firm hide $50 billion in profits. No one at Lehman Brothers was sentenced to jail since the transaction was technically considered legal, but Lehman was the largest investment bank to fail and the only large financial institution that was not bailed out by the U.S. government.

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2016-05

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Long Lines: Looking at The Starbucks On Campus from A Business Process Management Perspective

Description

This project aimed to find implementable solutions to the long flow times at the Starbucks locations on campus. Surveys of the consumers indicated a dissatisfaction rating of 29%, neutral rating of 29% and satisfaction rating of 42%. Showing room for

This project aimed to find implementable solutions to the long flow times at the Starbucks locations on campus. Surveys of the consumers indicated a dissatisfaction rating of 29%, neutral rating of 29% and satisfaction rating of 42%. Showing room for improvement in satisfaction, respondents were asked if a decrease in flow time or if mobile ordering was implemented would affect their frequency, over 50% responded that it would increase their frequency. Implementation of a mobile ordering system into the ASU app or separating the register line into M&G only and then cash and card only, is recommended to decrease the flow time.

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Date Created
2020-12

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The Effects of Board Diversity on Overall Firm Performance

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This thesis analyzes the relationship between diversity within U. S. boards of directors and overall firm performance. In the summer of 2020, various political and social movements erupted, fighting against police brutality and racial violence. These events were followed by

This thesis analyzes the relationship between diversity within U. S. boards of directors and overall firm performance. In the summer of 2020, various political and social movements erupted, fighting against police brutality and racial violence. These events were followed by an influx of diversity, equity, and inclusion (DEI) frameworks across corporate America. It was becoming increasingly clear that diversity within company leadership was lacking. A company’s board of directors, who is responsible for creating value for shareholders, was not an accurate representation of the people it served. First, I will begin by discussing the current state of diversity in corporate boards by discussing reasons firms diversify, benefits and risks of a diverse board, and major barriers to diversification efforts. A main goal of directors is to maximize shareholder return, which prompts the question: is there a financial benefit to having directors of different backgrounds, skills, and perspectives? In the second part of my thesis, I explore the correlation of board compositions and the company’s financial performance through a study of 45 Fortune 500 companies. Previous studies have mixed results; some studies concluded that there is a positive correlation, some found a negative correlation, and others were inconclusive. While the results of my study did not demonstrate that a relationship between firm performance and diversity exists, I want to emphasize that it does not mean that diverse boards do not contribute at all to the success of the board. There are various factors that contributed to my results, but regardless of my findings, I believe that further research of this topic is necessary and will be beneficial for those in corporate governance.

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2022-05