Does Equity‐Based Compensation Make CEOs Engage in More Corporate Misconduct Than Industry Norm: Evidence From the U.S. Restaurant Industry

Drawing upon agency theory and institutional theory perspectives, this study examines the relationship between CEOs' equity‐based compensation and a firm's corporate misconduct in the restaurant industry. Specifically, the study proposes that option‐loaded CEOs tend to engage in more corporate misconduct than the industry average. In addition, this study investigates the moderating roles of market conditions and social‐relative performance for the proposed main relationship. Using a sample of U.S. publicly traded restaurant firms, this study conducted a panel regression analysis. The results show that CEOs' equity‐based compensation positively affects a firm's corporate misconduct. Moreover, this positive relationship is enhanced when a firm faces a high level of market competition within the industry, whereas it is diminished when a firm has relatively better performance than other competitors. Given the lack of empirical studies that examine the effect of CEOs' compensation on corporate misconduct in hospitality literature, this study expands upon existing literature by showing the relationship between CEOs' compensation and restaurant firms' engagement in corporate misconduct.