臺大管理論叢 NTU Management Review VOL.28 NO.3

Does CEO Career Horizon Lead to Corporate Misconduct? Evidence of Taiwanese Semiconductor Firms 148 using a sample of 1,124 firm-year observations for 121 publicly listed Taiwanese semiconductor firms over the period of 2002~2013. The rest of the paper is organized as follows. Section 2 presents the theoretical background and develops the hypotheses. Section 3 describes our sample and measures. Section 4 reports the empirical results before we conclude with managerial implications and limitations in the final section. 2. Literature Review and Hypotheses Development Corporate misconduct refers to the actions taken by executives to conduct illegal operations when they perceive that the upside benefits of doing so will outweigh the downside risk (Mishina, Dykes, Block, and Pollock, 2010). Corporate misconduct thus can be a simple but unethical way for executives to reduce the pressure in achieving revenue and earnings goals by increasing the short-term financial profits, or offsetting the foreseeable losses (McKendall and Wagner, 1997; Mishina et al., 2010; Zhang et al., 2008). However, when firms are convicted of misconduct, they may rapidly lose valuable goodwill and reputation, which take a long time to build, and in turn diminish the firm value. In other words, corporate misconduct may imply the tension between short-term profits and long-term losses; the impulse to commit illegal conduct should be associated with the planning horizon of key decision makers. According to the agency theory, the reason why CEOs misbehave may be related to the varying levels of risk between principals (shareholders) and agents (CEOs) (Jensen and Meckling, 1976). The shareholders usually are able to neutralize the risks associated with their personal wealth by holding a diversified investment portfolio and thus have a longer horizon towards their investments. In contrast, CEOs are excessively committed to their companies and insufficiently diversified. Agency theorists believe that CEOs are motivated to adopt or ratify improper conduct in order to reduce their risk of loss or maximize their returns at the expense of shareholders’ wealth. It is recommended to align executive interests with that of shareholders, in order to decrease misconduct (Jensen and Murphy, 1999). A number of agency-based studies have examined the effects of CEO incentive schemes on corporate misconduct (Harris and Bromiley, 2007; McGuire, Dow, and Argheyd, 2003; O’Connor et al., 2006; Zhang et al., 2008). Although investigations on incentive-based instruments have been accumulating in determining the CEO’s influence on corporate misconduct, the complete explanation of why CEOs engage in illegal and unethical behavior still remains elusive (Chin et al., 2013; O’Connor et al., 2006; Zhang et al., 2008).