Abstract
This paper examines whether executive compensation structure is a predictor of a value judgment shift facilitating fraud. The recent Disposition-based Fraud Model (DFM) theorizes that in a fraud a judgment shift occurs that results in an intentional action. Judgment shifts occur based on intertemporal rewards, which are represented by executive compensation structure comprised of salary (immediate reward) and delayed compensation in performance-based incentives. Using an archival dataset consisting of frauds identified through Securities and Exchange Commission (SEC) Accounting and Auditing Enforcement Releases (AAER), the compensation structure of executives involved in frauds was compared against the compensation structure of executives in a control group. There was a significant difference in the intertemporal rewards of the compensation structures between the two groups indicating that compensation structure presented intertemporal choices leading to a judgment shift resulting in the deliberate action of fraud.