X Du

This study broadens financial misconduct literature by highlighting the ripple effect of a competitor chief executive officer’s (CEO’s) award-winning event. We posit that after witnessing a competitor CEO winning an award, focal CEOs are likely to experience the threat posed by upward social comparison, thereby increasing the probability of fraudulent behaviors. Utilizing a matched sample of publicly listed enterprises in China from 2005 to 2022, the results indicate that focal CEOs have a greater likelihood of corporate financial misconduct after the award year for rivals. In particular, the main effect is strengthened by the below-aspirations performance, the firm age difference between focal and competitor firms, and the focal CEO’s narcissism. Our study contributes to financial misconduct literature by revealing a peer-induced trigger—competitor CEO awards—and identifying the boundary conditions for potential detrimental outcomes for focal firms.

Drawing on the cognitive dissonance theory and the behavioral consistency theory, this study examines whether hypocrisy, proxied by the ethical dissonance between corporate philanthropy and environmental misconducts, triggers auditors to issue modified audit opinions (MAOs), and further investigates the moderating effect of hypocrisy on the relation between financial reporting quality (proxied by discretionary accruals) and MAOs. Using a sample of 20,852 firm-year observations from the Chinese stock market over 2005–2019, our findings reveal that the likelihood of receiving MAOs is significantly higher for hypocritical firms than for their counterparts, suggesting that hypocrisy provides negative soft information about top managers' myopia, immorality and lack of integrity, elicits the perceived distrust from auditors, motivates auditors to have a higher extent of professional skepticism, and eventually triggers MAOs. Moreover, hypocrisy reinforces the negative (positive) relation between financial reporting quality (discretionary accruals) and MAOs. Furthermore, above findings are robust to a variety of sensitivity tests using alternative proxies for modified audit opinions and hypocrisy, as well as different sample compositions, and further our conclusions are still valid after using the propensity score matching approach and two-stage treatment effect regression procedures to control for the endogeneity issue. Lastly, the effect of hypocrisy on MAOs is more pronounced for remedial (ex post) hypocrisy than for preventive (ex ante) hypocrisy.