Article2018

Are Qualified and Experienced Outside Directors Willing to Join Fraudulent Firms and If So, Why?

Samir Ghannam · Martin Bugeja · Zoltan Paul Matolcsy · Helen Spiropoulos

50 citations0/0 files storedThe Accounting Review

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Corporate Finance and Governance Auditing, Earnings Management, Governance Corporate Governance and Financial Management

Abstract

ABSTRACT We investigate whether qualified and experienced directors are willing to join firms following the revelation of financial fraud. Specifically, we focus on directors with prior board experience and accounting and legal experts. We find that, notwithstanding the tarnished reputation of fraudulent firms and a higher workload, qualified and experienced directors join the boards of such firms. Subsequent to joining fraudulent firms, directors are rewarded with additional future board seats and benefit from higher compensation. We rule out alternative explanations and verify the robustness of the results by performing a variety of tests, including propensity score matching and difference-in-differences analysis. JEL Classifications: G30; G34.

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References

2010Understanding earnings quality: A review of the proxies, their determinants and their consequences 1996Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC*1995The information content of losses 2010Who Blows the Whistle on Corporate Fraud?2011Predicting Material Accounting Misstatements*2007The determinants of board structure☆1994Shareholder Litigation and Corporate Disclosures 2008The Cost to Firms of Cooking the Books

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2019How do restatements affect outside directors and boards? A review of the literature 2021Auditors’ response to corporate fraud: evidence from audit fees and auditor turnover

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