Financial Architecture and Manager Dishonesty: Lessons from US Corporate Scandals

Vranceanu, Radu (2005) Financial Architecture and Manager Dishonesty: Lessons from US Corporate Scandals. Acta Oeconomica, 55 (1). pp. 1-22. ISSN 0001-6373

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Abstract

During the US Internet bubble (1995-2001), several top executives dismissed both the law and ethical norms transferring large chunks of company wealth into their own hands. This paper investigates the key economic factors that brought about the proliferation of dishonest managerial behaviour, focussing on the weak internal control, perverse incentives related to managers' compensation schemes and conflicts of interest in the banking and auditing sectors. In order to prevent further abuses, the US administration imposed several regulatory changes, mainly through the Sarbanes- Oxley Act of 2002; we argue why some of its provisions might be taken one step further.

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