In within-firm analysis of 1,805 executives, executives implicated in financial reporting fraud cases have significantly stronger equity incentives than their within-firm peers who are not implicated in the fraud. Executives implicated in fraud cases also have significantly stronger equity incentives than executives at non-fraud firms in similar roles. However, the equity incentives of non-implicated executives at fraud firms are no different than those for executives at non-fraud firms. The results are significant across executive roles and for equity incentives measured as wealth sensitivity to changes in stock price or stock price volatility. Executive-level analysis that considers which executives are implicated in the fraud may provide more precise measurement of the association and statistical significance of the relationship between equity incentives and fraud. Finally, firm-level measures that consider the equity incentives of all members of the top management team may better identify fraud firms than do measures focusing on one executive.

We analyze whether exposure to an SEC insider trading enforcement action affects how insiders trade. We find that following an insider trading enforcement action at one firm, exposed insiders earn significantly lower abnormal profits from their trades at other firms compared to non-exposed insiders. The deterrent effect is stronger when a fellow insider is convicted, and is similarly significant both pre- and post-SOX. Following the enforcement event, exposed insiders do not trade less frequently, but do trade significantly fewer shares per trade. Insiders who have witnessed an enforcement action have a lower probability for future conviction than their unexposed peers. Data Availability: Data are available from the public sources cited in the text.